5New heading and section CB 24B inserted

“Environmental restoration

“CB 24BEnvironmental restoration accounts

“Income from refund

“(1)A person who receives a refund for a tax year under section EK 12 (Refund on request) derives for the person's corresponding income year an amount of income calculated using the formula—

“Income from transfer from environmental restoration account

“(2)If there is a transfer from a person's environmental restoration account under section EK 15 (Transfer on request), EK 16 (Transfer on death, bankruptcy, or liquidation), or EK 19 (Environmental restoration account of amalgamating company), the person derives for the corresponding income year an amount of income calculated using the formula—

“Definitions of items in formulas

“(3)The items in the formulas are defined in subsections (4) to (6).

“Refund

“(4)Refund is the amount of the refund.

“Tax rate

“(5)Tax rate is the highest rate of income tax on taxable income that—

“(a)is stated in schedule 1; and

“(b)would apply to the person for the tax year if the person had sufficient taxable income.

“Transfer

“(6)Transfer is the amount in the environmental restoration account that is transferred.

“Income arising from renewal of resource consent

“(7)A person who incurs expenditure of a type listed in schedule 6B, part A, paragraphs 2 to 5 (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C derives income under subsection (8) if—

“(a)the deduction under section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant) for the expenditure is determined by the period for which a resource consent is granted; and

“(b)the period of the grant of the resource consent is extended by more than 50% in a later income year or a new resource consent is granted for a period that is more than 50% of the total period of the resource consent.

“Amount of income

“(8)The person derives for the income year in which the period of the resource consent is extended, or the new resource consent is granted, an amount of income equal to the greater of zero and the difference between—

“(a)the total deduction under section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant) for the person for the period from the grant of the resource consent to the beginning of the income year:

“(b)the total deduction for the expenditure that the person would have had under section DB 37 for the period referred to in paragraph (a), if the period of the resource consent at the time of the grant had been 35 years.

7Royalties

8Elections to make bonus issue into dividend

(1)Section CD 7(1), other than the heading, is replaced by the following:

“(1)A bonus issue that is not a bonus issue in lieu is a dividend if—

“(a)the bonus issue—

“(i)is issued fully paid from reserves of the company:

“(ii)if a dividend, would not be exempt income under section CW 10 (Dividend within New Zealand wholly-owned group) or CW 11 (Dividend of conduit tax relief holding company); and

“(b)the company chooses under this section to treat the bonus issue as a dividend.”

(2)Subsection (1) applies for an issue of shares made on or after 16 November 2004.

9Returns of capital: off-market share cancellations

(1)Section CD 14(5), other than the heading, is replaced by the following:

“(5)If a company is an unlisted widely-held trust not resident in New Zealand and a shareholder cannot obtain sufficient information to calculate the available subscribed capital per share under the ordering rule,—

“(a)the share is treated as if it were issued under subsection (4) on terms that the slice rule applies; and

“(b)the available subscribed capital under the slice rule is—

“(i)the amount paid for the issue of the share, if subparagraph (ii) does not apply; or

“(ii)the value of the money or property in which a beneficial interest would have vested in the share-holder had the share not been issued, if the share is a taxable bonus issue under paragraph (d) of the definition of the term.”

10Recovered expenditure or loss

In the list of defined terms in section CG 4, “, loss” is inserted after “income year”.

11New section CW 45B inserted

“CW 45BNon-resident company involved in exploration and development activities

“Exempt income

“(1)An amount of income derived by a non-resident company from exploration and development activities in an offshore permit area is exempt income if it is derived in the period that—

“(a)starts on the beginning of the 2005-06 income year for the non-resident company; and

“(b)ends on 31 December 2009.

“Some definitions

“(2)In this section,—

“exploration and development activities means the following activities undertaken for the purposes of identifying and developing exploitable petroleum deposits or occurrences in an offshore permit area

19Section DB 37 replaced

“DB 37Avoiding, remedying, or mitigating effects of discharge of contaminant

“When this section applies

“(1)This section applies if a person—

“(a)carries on a business in New Zealand; and

“(b)the person incurs, in the business or in ending the operations of the business, expenditure that is—

“(i)of a type listed in schedule 6B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C; and

“(ii)not incurred in relation to revenue account property other than land that is subject to section CB 6B (Disposal: land used for landfill, if notice of election); and

“(c)no other provision allows a deduction for the expenditure.

“Amount and timing of deduction

“(2)The person is allowed for an income year a deduction for the expenditure of,—

“(a)if paragraphs (b) and (c) do not apply, an amount that is calculated using the formula—

rate x value:

“(b)if the operations of the business for which the expenditure was incurred come to an end in the income year, the diminished value or adjusted tax value of the expenditure for the income year:

“(c)if an improvement on which the expenditure was incurred is destroyed, or is rendered useless for the purposes for which the expenditure was incurred, and paragraph (b) does not apply, the diminished value or adjusted tax value of the expenditure for the income year.

“Definition of items in formula

“(3)The items in the formula in subsection (2)(a) are defined in subsections (4) and (5).

“Rate

“(4)Rate is—

“(a)100%, if the expenditure is of a type listed in schedule 6B, part A, item 1, or part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and the rate is not given by paragraph (b) or (c):

“(b)the appropriate rate given by subsection (5) if—

“(i)the expenditure is of a type listed in schedule 6B, part A, items 2 to 5; and

“(ii)no applicable rate is given by paragraph (c):

“(c)the rate for the type of expenditure, the income year, the valuation method adopted under subsection (6), and the person, determined by the Commissioner under section 91AAN of the Tax Administration Act 1994, if such a rate is determined.

“Banded straight-line rate or corresponding diminishing value rate

“(5)The rate for expenditure if subsection (4)(b) is satisfied is—

“(a)the straight-line rate given in schedule 11, column 2 that is nearest to the rate calculated for the expenditure using the formula in subsection (7), if the person elects to use the straight-line method:

“(b)the diminishing value rate given in schedule 11, column 1 that corresponds to the straight-line rate given by paragraph (a), if the person elects to use the diminishing value method.

“Value

“(6)Value is—

“(a)the adjusted tax value of the expenditure, if the person elects to use the straight-line method:

“(b)the diminished value of the expenditure for the income year, if the person elects to use the diminishing value method.

“Formula for rate for expenditure with assumed life

“(7)The formula for the straight-line rate for a type of expenditure to which subsection (4)(b) applies is—

“Definition of item in formula

“(8)In the formula in subsection (7), assumed life for expenditure and an income year is,—

“(a)for expenditure associated with a business activity that does not require a resource consent, 35:

“(b)for expenditure associated with a business activity that requires a resource consent, the lesser of 35 and the number of the years in the period of the resource consent that include or follow the time at which the expenditure is incurred.

“Link with subpart DA

“(9)This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

“Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission. income year, New Zealand., ”

(2)Subsection (1) applies for expenditure incurred by a person in an income year starting on or after 10 June 2005.

21Heading to subpart DQ

22New section DQ 4 added

“DQ 4Environmental restoration accounts scheme

“Deduction for payment

“(1)A person is allowed a deduction of the amount given by section EK 7 (Deduction for payment) if the person has made a payment to the Commissioner for an income year under section EK 2 (Persons who may make payment to environmental restoration account) that is not refunded under section EK 9 (Refund of payment if excess, lacking details).

“Timing of deduction

“(2)A deduction under subsection (1) is allocated to the income year given by section EK 7 (Deduction for payment).

“Deduction for transfer

“(3)A person is allowed a deduction for an income year of the amount given by section EK 8 (Deduction for transfer) if in the income year the person receives—

“(a)a transfer under section EK 15 (Transfer on request) that is treated under section EK 15(4) as being a payment by the person:

23Enhancements to land unamortised at end of 2004-05 year

“(a)a person is allowed under section DO 4(1) of the Income Tax Act 1994 a deduction of an amount given by section DO 4(3)(a) or (c) of that Act for expenditure incurred in carrying on a farming or agricultural business on land in New Zealand; and”.

(2)In section DZ 13(1)(b), “claimed as a deduction in later income years; and” is replaced by “allowed as a deduction in later income years”.

26Calculation rule: income year in which item disposed of

27Annual rate for fixed life intangible property

In section EE 27(1), “(not including an item of excluded depreciable property, for which a rate is set in section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year)).” is replaced by “, not including—” and the following is added:

“(a)an item of excluded depreciable property for which a rate is set in section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year):

“(b)a patent or patent application for which a rate is set in sections EE 27B or EE 27D:

“When this section applies

“(a)an application for a patent with a complete specification is lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction; and

“(b)the application is lodged with the complete specification before 1 April 2005; and

“(c)the patent is granted to a person in an income year of the person that corresponds to the 2005-06 or a later tax year.

“Income years for which usual rate applies

“(2)The rate given by subsection (3) applies for the patent for an income year that begins—

“(a)after the date on which the patent is granted; and

“(b)before the date that is 240 months after the patent application date.

“Usual rate

“(3)The rate is calculated using the formula—

“Rate for first income year of use

“(4)For the patent and the income year that includes the date on which the patent is granted, the rate is found by adding together the following rates:

“(a)the rate calculated using the formula—

“(b)the rate calculated for the income year under subsection (3).

“Effect of change in ownership of patent application

“(5)If the patent is granted to a person who does not lodge the application for the patent with the complete specification, the rates calculated under subsections (3) and (4) for the person depend on the period between the date on which the person acquires the application and the date on which the patent is granted.

“Definition of items in formulas in subsections (3) and (4)

“(6)The items in the formulas in subsections (3) and (4) are defined in subsections (7) to (9).

“Months

“(7)Months is the number in the income year of months, beginning on or a whole number of months after the beginning of the income year,—

“(a)in which the patent is used or is available for use; and

“(b)that include or begin after the date on which the patent is granted; and

“(c)that end before the date that is 240 months after the patent application date.

“Depreciation months

“(8)Depreciation months is,—

“(a)if subsection (5) does not apply, 240:

“(b)if subsection (5) applies, 240 reduced by the number of months, beginning on or a whole number of months after the beginning of an income year of the person, that—

“(i)include or begin after the patent application date; and

“(ii)end before the date on which the person acquires the application.

“Months before grant

“(9)Months before grant is the number of months, beginning on or a whole number of months after the beginning of an income year of the person, that,—

“(a)if subsection (5) does not apply,—

“(i)include or begin after the patent application date; and

“(ii)end before the date on which the patent is granted:

“(b)if subsection (5) applies—

“(i)include or begin after the date on which the person acquires the application; and

“(ii)end before the date on which the patent is granted.

“Defined in this Act: amount, income year, patent application date,

“EE 27CAnnual rate for patent applications lodged with complete specifications on or after 1 April 2005

“When this section applies

“(1)This section applies if—

“(a)an application for a patent with a complete specification is lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction; and

“(b)the application is lodged with the complete specification on or after 1 April 2005.

“Income years for which rate applies

“(2)The rate given by subsection (3) applies for a patent application for an income year that—

“(a)includes or begins after the patent application date; and

“(b)begins before the date on which—

“(i)the patent is granted; or

“(ii)the patent application is refused or withdrawn.

“Rate

“(3)The rate is calculated using the formula—

“Months

“(4)Months is the number in the income year of months, beginning on or a whole number of months after the beginning of the income year, that—

“(a)include or begin after the patent application date; and

“(b)end before the date on which—

“(i)the patent is granted; or

“(ii)the patent application is refused or withdrawn.

“Depreciation months

“(5)Depreciation months is,—

“(a)if subsection (6) does not apply, 240:

“(b)if subsection (6) applies, 240 reduced by the number of months, beginning on or a whole number of months after the beginning of an income year of the person, that—

“(i)include or begin after the patent application date; and

“(ii)end before the date on which the person acquires the application.

“Effect of change in ownership of patent application

“(6)If the person who owns the patent application when the patent is granted, or when the patent application is refused or withdrawn, is not the person who lodges the application for the patent with the complete specification, the rate calculated under subsection (3) for the person depends on the period between the patent application date and the date on which the person acquires the application.

“Defined in this Act: amount, income year, patent application date,

“EE 27DAnnual rate for patents: applications lodged with complete specifications on or after 1 April 2005

“When this section applies

“(1)This section applies if—

“(a)an application for a patent with a complete specification is lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction; and

“(b)the application is lodged with the complete specification on or after 1 April 2005; and

“(c)the patent is granted to a person in an income year of the person that corresponds to the 2005-06 or a later tax year.

“Income years for which rate applies

“(2)The rate given by subsection (3) applies for a patent for an income year that—

“(a)includes or begins after the date on which the patent is granted; and

“(b)begins before the date that is 240 months after the patent application date.

“Rate

“(3)The rate is calculated using the formula—

“Months

“(4)Months is the number in the income year of months, beginning on or a whole number of months after the beginning of the income year, that—

“(a)include or begin after the date on which the patent is granted; and

“(b)end before the date that is 240 months after the patent application date.

“Depreciation months

“(5)Depreciation months is,—

“(a)if subsection (6) does not apply, 240:

“(b)if subsection (6) applies, 240 reduced by the number of months, beginning on or a whole number of months after the beginning of an income year of the person, that—

“(i)include or begin after the patent application date; and

“(ii)end before the date on which the person acquires the application.

“Effect of change in ownership of patent application

“(6)If the patent is granted to a person who does not lodge the application for the patent with the complete specification, the rate calculated under subsection (3) for the person depends on the period between the patent application date and the date on which the person acquires the application.

“Defined in this Act: amount, income year, patent application date,

“EE 27EAnnual rate for plant variety rights

“When this section applies

“(1)This section applies if—

“(a)a plant variety right is given provisional protection; and

“(b)the plant variety right is granted to a person in an income year that corresponds to the 2005-06 or a later tax year.

“Income years for which usual rate applies

“(2)The rate given by subsection (3) applies for the plant variety right for an income year that begins—

“(a)after the date on which the plant variety right is granted; and

“(b)before the date on which the plant variety right expires.

“Usual rate

“(3)The rate is calculated using the formula—

“Rate for first income year of use

“(4)For the plant variety right and the income year that includes the date on which the plant variety right is granted, the rate is found by adding together the following rates:

“(a)the rate calculated using the formula—

“(b)the rate calculated for the income year under subsection (3).

“Definition of items in formulas in subsections (3) and (4)

“(5)The items in the formulas in subsections (3) and (4) are defined in subsections (6) to (8).

“Months

“(6)Months is the number in the income year of months, beginning on or a whole number of months after the beginning of the income year,—

“(a)in which the plant variety right is used or available for use; and

“(b)that end before the date on which the plant variety right expires.

“Depreciation months

“(7)Depreciation months is,—

“(a)if subsection (9) does not apply, the number of months in the period for which the plant variety right is granted plus the number of months, beginning on or a whole number of months after the beginning of an income year of the person,—

“(i)in which the plant variety right has provisional protection; and

“(ii)ending before the date on which the plant variety right is granted:

“(b)if subsection (9) applies, the number of months referred to in paragraph (a) reduced by the number of months, beginning on or a whole number of months after the beginning of an income year of the person, that—

“(i)include or begin after the date on which the plant variety right is given provisional protection; and

“(ii)end before the date on which the person acquires the application.

“Months before grant

“(8)Months before grant is the number of months, beginning on or a whole number of months after the beginning of an income year of the person, that,—

“(a)if subsection (9) does not apply,—

“(i)include or begin after the date on which the plan variety right is given provisional protection; and

“(ii)end before the date on which the plant variety right is granted:

“(b)if subsection (9) applies,—

“(i)include or begin after the date on which the person acquires the application; and

“(ii)end before the date on which the plant variety right is granted.

“Effect of change in ownership of application for plant variety right

“(9)If the plant variety right is granted to a person who does not lodge the application for the plant variety right, the rates calculated under subsections (3) and (4) for the person depend on the period between the date on which the person acquires the application and the date on which the plant variety right is granted.

“EK 3Payments to environmental restoration account

“Upper limit of payment

“(1)A person must not make a payment for an income year of more than the person's maximum payment for the income year.

“Lower limit of payment

“(2)A person must not make a payment for an income year of less than $1,000.

“Time for making payment

“(3)A payment made after the day that is 6 months after the end of an income year is not made for the income year unless—

“(a)the Commissioner has allowed a longer period for the payment; and

“(b)the payment is made within the period allowed by the Commissioner.

“Defined in this Act: Commissioner, income year, maximum payment,

“EK 4Environmental restoration account

“Person's account

“(1)The Commissioner must keep an environmental restoration account in the name of every person who makes a payment to the Commissioner under section EK 2.

“Payments in account

“(2)Every payment under section EK 2 that a person makes to the Commissioner must be entered in the person's environmental restoration account.

“Amounts in account

“(3)The only amounts that may be entered in a person's environmental restoration account are—

“(a)payments made by the person to the Commissioner under section EK 2:

“(b)transfers made to the account under subsection (6):

“(c)interest paid under section EK 6.

“Amounts not available to others

“(4)Amounts entered in a person's environmental restoration account may not, while they are in the account,—

“(a)be assigned or charged in any way:

“(b)pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation:

“(c)be assets for the payment of the person's debts or liabilities, except when the person is bankrupt or has been put into liquidation:

“(d)be assets for the payment of the debts or liabilities of a dead person's estate.

“Amounts not available except for refunds or transfers

“(5)An amount entered in a person's environmental restoration account may not be removed from the environmental restoration account except by a refund under section EK 9 or EK 12 or by a transfer under subsection (6).

“Transfers of amounts

“(6)An amount may be transferred from the environmental restoration account of a person—

“(a)to an environmental restoration account of a person to whom the amount has been transferred under section EK 15 or EK 16(3)(b):

“(b)to the department that is at the time responsible for the administration of the Environment Act 1986, if the amount has been transferred under section EK 16(3)(a):

“(c)to an environmental restoration account of an amalgamated company to which the amount has been transferred under section EK 19.

“Commissioner may close empty account

“(7)The Commissioner may close an environmental restoration account of a person if the amount in the environmental restoration account is zero.

“EK 6Interest on payments to environmental restoration account

“Interest payable

“(b)an amount that is treated under section EK 15 or EK 19 as being a payment to an environmental restoration account.

“Period

“(2)Interest is computed with daily rests from the day after the date of the payment until the day before the date on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.

“Date to which interest accrues

“(3)Interest that has accrued on a payment is payable to the person who has the environmental restoration account on the earlier of—

“(a)31 March in each year:

“(b)the day on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.

“Rate

“EK 7Deduction for payment

“When this section applies

“(1)This section applies if a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a payment to the person's environmental restoration account under section EK 2.

“Amount of deduction

“(2)The amount of the deduction is calculated using the formula—

“Definitions of items in formula

“(3)The items in the formula are defined in subsections (4) and (5).

“Payment

“(4)Payment is the lesser of—

“(a)the person's payment to the Commissioner under section EK 2 for the income year; and

“(b)the person's maximum payment for the income year.

“Tax rate

“(5)Tax rate is the highest rate of income tax on taxable income that—

“(a)is stated in schedule 1; and

“(b)would apply to the person for the tax year if the person had sufficient taxable income.

“Timing of deduction

“(6)The person is allowed the deduction for the income year for which the payment is made.

“EK 9Refund of payment if excess, lacking details

“When this section applies

“(1)This section applies if a person's payment under section EK 2 for an income year is—

“(a)more than the person's maximum payment for the income year:

“(b)made without providing the details required by section EK 5.

“Refund

“(2)As soon as practicable after the date on which the payment is received, the Commissioner must refund to the person—

“(a)the excess, if the payment is more than the person's maximum payment for the income year:

“(b)the payment, if the payment is described by subsection (1)(b).

“No interest payable by Commissioner

“(3)No interest is payable by the Commissioner under section EK 6 on the amount of the payment.

“Defined in this Act: Commissioner, income year, interest, maximum payment,

“EK 10Certain refunds not income

A refund under section EK 9 is excluded income under section CX 43B (Refund from environmental restoration account).

“Defined in this Act: excluded income,

“EK 11Application for refund

“Who may apply

“(1)A person may apply to the Commissioner for a refund under section EK 12 of an amount in the person's environmental restoration account if the refund—

“(a)corresponds to expenditure incurred by the person of a type that is listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C:

“(b)represents an excess in the person's environmental restoration account over the maximum account balance for the person's environmental restoration account for the income year.

“Application

“(2)An application for a refund must—

“(a)be in writing; and

“(b)state the grounds on which the application is made; and

“(c)provide evidence satisfactory to the Commissioner verifying the existence of the grounds; and

“(d)state the amount of the refund that the applicant wants.

“Defined in this Act: Commissioner, environmental restoration account, income year,

“EK 12Refund

“When this section applies

“(1)This section applies when—

“(a)a person wants a refund of some or all of the amount in the person's environmental restoration account and none of sections EK 9, EK 15, EK 16, and EK 19 applies:

“(b)the amount in the person's environmental restoration account exceeds the maximum account balance for an income year.

“Refund if request made

“(2)The Commissioner must make a refund under this section to a person if—

“(a)the person applies for a refund and has incurred expenditure—

“(i)of a type that is listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C; and

“(ii)of an amount equal to or greater than the amount given by subsection (3) for the amount of the refund; and

“(iii)after the first date on which the person made to the Commissioner a payment under section EK 2 for entry in the person's environmental restoration account or a transfer under section EK 15, EK 16, or EK 19 was made to the person's environmental restoration account:

“(b)the maximum account balance for the latest complete income year for the person's environmental restoration account is less than the amount in the environmental restoration account at the end of that income year.

“Minimum amount of expenditure incurred

“(3)The amount of expenditure incurred that corresponds to the amount of a refund is calculated using the formula—

“Definitions of items in formula

“(4)The items in the formula are defined in subsections (5) and (6).

“Amount

“(5)Amount is the amount of the refund.

“Tax rate

“(6)Tax rate is the highest rate of income tax on taxable income that—

“(a)is stated in schedule 1; and

“(b)would apply to the person for the tax year if the person had sufficient taxable income.

“Amount of refund if expenditure incurred

“(7)If a person is entitled to a refund under subsection (2)(a), the amount that the Commissioner must refund to the person is the smallest of—

“(a)the refund for which the person applies:

“(b)the contents of the person's environmental restoration account at the time of the refund:

“(c)the refund corresponding to the person's expenditure that satisfies subsection (2)(a)(i) to (iii).

“Amount of refund if maximum account balance decreases

“(8)If a person is entitled to a refund under subsection (2)(b), the amount that the Commissioner must refund to the person is the lesser of—

“(a)the refund for which the person applies:

“(b)the difference at the end of the latest complete income year between—

“(i)the amount in the person's environmental restoration account, after any transfer under section EK 15, EK 16, or EK 19 for the income year:

“EK 15Transfer on request

“When this section applies

“(a)a person applies under section EK 14 for a transfer of some or all of the amount in their environmental restoration account to a person who is nominated in the application; and

“(b)the person has transferred to the nominated person the obligations to which the amount relates; and

“(c)none of sections EK 9, EK 12, EK 16, and EK 19 applies.

“Transfer if request made

“(2)The Commissioner must make a transfer under this section to an environmental restoration account of the person nominated in the application.

“Transfer treated as payment by nominated person if transfer of obligations verified

“(3)A transfer under subsection (2) is treated as being a payment by the nominated person to the nominated person's environmental restoration account if the nominated person satisfies the Commissioner that—

“(a)the obligations to which the transferred amount relates have been transferred to the nominated person; and

“(b)in the absence of the transfer, the nominated person would be entitled to make a payment, of the amount of the transfer, to the nominated person's environmental restoration account.

“Commissioner to reverse transfer if not satisfied under subsection (3)

“(4)If the nominated person does not satisfy the requirements of subsection (3) in relation to an amount, the Commissioner must transfer the amount to the environmental restoration account of the person who made the application under subsection (1)(a).

“Timing of reversal

“(5)The transfer under subsection (4) is treated as taking place at the time of the original transfer under subsection (2).

“When this section applies

“Transfer to other person

“(2)Subsection (3) applies if the Commissioner is informed, by the administrator of the person's estate, the Official Assignee, or the person's liquidator, that the obligation to which the balance in the person's environmental restoration account relates has been transferred to another person.

“Transfer to Crown or other person

“(3)The Commissioner must transfer the amount referred to in subsection (4) to—

“(a)the department that is at the time responsible for the administration of the Environment Act 1986, if the transfer is to Her Majesty the Queen in right of New Zealand; or

“(b)an environmental restoration account of the person to whom the obligation has been transferred, if paragraph (a) does not apply.

“Amount of transfer

“(4)The Commissioner must transfer under subsection (3) the amount that is in the person's environmental restoration account—

“(a)on the date on which the person dies, if subsection (1)(b)(i) applies:

“(b)on the date on which the person becomes bankrupt, if subsection (1)(b)(ii) applies:

“(c)on the date on which the person is put into liquidation, if subsection (1)(b)(iii) applies.

“Section EK 17 overrides subsection (4)

“(5)Section EK 17 overrides subsection (4).

“Year of income

“(6)The amount of a transfer under this section is income, under section CB 24B (Environmental restoration accounts), derived by the person on the day before the day on which the amount of the transfer is determined under subsection (4).

“EK 18Payments from which refunds come

Each refund to a person is treated as coming from the total amount in the person's environmental restoration account in the order in which the person made the payments into the account.

“Defined in this Act: amount, environmental restoration account,

“EK 19Environmental restoration account of amalgamating company

If an amalgamating company with an environmental restoration account ceases to exist because of an amalgamation during an income year,—

“(a)the contents of the environmental restoration account of the amalgamating company are transferred to an environmental restoration account of the amalgamated company on the date of the amalgamation:

“(b)the amalgamated company is treated as having—

“(i)made to the amalgamated company's environmental restoration account the payments that the amalgamating company made before the amalgamation to the amalgamating company's environmental restoration account; and

“(ii)made from the amalgamated company's environmental restoration account the transfers that the amalgamating company made before the amalgamation from the amalgamating company's environmental restoration account; and

“(iii)received from the amalgamated company's environmental restoration account the refunds that the amalgamating company received before the amalgamation from the amalgamating company's environmental restoration account.

“EK 20Environmental restoration account of member of consolidated group

“Member may have environmental restoration account

“(1)A member of a consolidated group may have an environmental restoration account.

“Nominated company for group may act on behalf of member

“(2)The nominated company for the consolidated group may make payments and applications and receive refunds under this subpart on behalf of the member.

“Use of consolidated financial statements for group

“(3)In making payments and applications under this subpart, the nominated company may rely on the audited consolidated financial statements for the consolidated group.

“Use of consolidated figures for liabilities anticipated and expenditure incurred

“(4)If the nominated company relies on the audited consolidated financial statements for the consolidated group, the consolidated figures for the anticipated liabilities and incurred expenditure of the consolidated group are attributed to the members on the basis of the individual obligations of the members to incur expenditure of a type listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C.

“EK 21Commissioner may require notice in electronic format

The Commissioner may require a person to provide a notice under this subpart in an electronic format that the Commissioner prescribes under section 36BC of the Tax Administration Act 1994.

“Defined in this Act: Commissioner,

“EK 22Meaning of maximum payment

“Meaning of maximum payment

“(1)In this subpart, maximum payment means the maximum payment that under subsection (2) a person may make to the person's environmental restoration account for an income year.

“Amount of maximum payment

“(2)The maximum payment that a person may make for an income year is the lesser of—

“(a)the amount by which the maximum account balance for the income year for the environmental restoration account exceeds the amount in the environmental restoration account at the end of the income year:

“(b)the amount, if any, given for the person and the income year by subsection (3).

“Maximum payment for first 5 years of environmental restoration funds scheme

“(3)If a person has a maximum account balance for the 2005-06 income year that is more than zero, the amount given by this subsection for the person and for that income year, and for each of the later income years before the 2010-11 income year, is the amount given by the formula—

level increase + (year x 0.2 x initial level) – contents.

“Definitions of items in formula

“(4)In the formula,—

“(a)level increase is the greater of zero and the amount by which the maximum account balance for the income year exceeds the maximum account balance for the 2005-06 income year:

“(b)year is 1 for the 2005-06 income year and increases by 1 for each successive income year to a maximum of 5 for the 2009-10 income year:

“(c)initial level is the maximum account balance for the 2005-06 income year:

“(d)contents is the amount in the environmental restoration account at the end of the income year.

48Section EW 44 repealed

49Section EX 55 repealed

50Disposal of trading stock

In section FB 3, “(whether by way of exchange, or gift, or distribution in terms of a will or on an intestacy, or otherwise” is replaced by “(whether by way of exchange, or otherwise, other than by a disposition of property that is not at market value because of the operation of any of sections FI 4 to FI 6”.

51Rules for personal property lease asset during term of finance lease

(1)In section FC 8B(2), “lease term” is replaced by “term of the lease”.

(2)In section FC 8B(3), “lease term” is replaced by “term of the lease”.

54Entities to which apportionment rule potentially applies

“(1)A taxpayer is not subject for a tax year to the interest apportionment rule in section FG 8 or the adjustment of annual total deduction in section FG 8B unless, at a time in the taxpayer's income year, the taxpayer—

“(a)is a non-resident who is not a company:

“(b)is a company that is a non-resident in which—

“(i)no person who is resident in New Zealand has a direct ownership interest that is equal to or greater than 50%:

“(ii)a non-resident has a direct ownership interest that, when aggregated with the direct ownership interests of persons associated with the non-resident, is equal to or greater than 50%:

“(c)is a company that is resident in New Zealand—

“(i)in which a non-resident has an ownership interest that is equal to or greater than 50%:

“(ii)of which a non-resident has control by any other means:

“(d)is the trustee of a non-qualifying trust for which 50% or more in value of the settlements on the trust is settled by—

55Section FG 3 replaced

“(1)A taxpayer who is not excluded by section FG 2 from the application of section FG 8 for a tax year is required to make an apportionment under section FG 8 of interest expenditure incurred during the corresponding income year of the taxpayer if the taxpayer—

“(a)at no time in the income year—

“(i)is a reporting bank for a New Zealand banking group:

“(ii)is part of a New Zealand banking group for the purpose of section FG 8C; and

“(b)has a New Zealand group debt percentage for the income year that—

“(i)is greater than 75%; and

“(ii)if the taxpayer is a company or a trustee, exceeds the number obtained by multiplying the worldwide group debt percentage of the taxpayer by 1.1.

“(2)A taxpayer who is not excluded by section FG 2 from the application of section FG 8B for a tax year is treated as having an annual total deduction for the tax year of an amount that is given by section FG 8B if—

“(a)at a time in the taxpayer's corresponding income year the taxpayer is the reporting bank for a New Zealand banking group; and

“(b)the New Zealand banking group has a New Zealand net equity, as defined in section FG 8G, of less than the net equity threshold for the New Zealand banking group, as defined in section FG 8H, on a measurement day for the taxpayer's corresponding income year, as defined in section FG 8E.”

56Rules for calculating New Zealand group debt percentage

(1)In section FG 4(12)(b), “New Zealand parent.” is replaced by “New Zealand parent; and” and the following is added:

“(c)are not members of the New Zealand banking group of a registered bank.”

(2)In section FG 4(14C)(b)(iii), “New Zealand parent.” is replaced by “New Zealand parent; and” and the following is added:

“(c)are not members of the New Zealand banking group of a registered bank.”

(3)In section FG 4(14D), before paragraph (a), the following is inserted:

“(aa)none of the taxpayer and the other companies is a member of a New Zealand banking group; and”.

57Apportionment of interest deductions

(1)In the heading to section FG 8, “—taxpayer not in New Zealand banking group” is added after “deductions”.

(2)In section FG 8(1), “taxpayer is not in a New Zealand banking group and the” is inserted after “if a”.

58New sections FG 8B to FG 8J inserted

“FG 8BAdjustment of annual total deduction—reporting bank

“(1)For a taxpayer that is a reporting bank and under section FG 3(2) has an annual total deduction for a tax year given by this section, the taxpayer's annual total deduction for the tax year is,—

“(a)if the New Zealand banking group of the reporting bank has a group funding debt for the tax year that is not zero, the amount calculated using the formula—

unadjusted annual total deduction –adjustments:

“(b)if the New Zealand banking group of the reporting bank has a group funding debt for the tax year of zero, the annual total deduction for the tax year that the taxpayer would have had in the absence of this section and section FG 3(2).

“(2)In the formula in subsection (1)(a),—

“(a)unadjusted annual total deduction is the annual total deduction for the tax year that the taxpayer would have had in the absence of this section and section FG 3(2):

“(b)adjustments is the sum of the income adjustment amounts that are given by subsection (4) for the measurement periods for the corresponding income year of the reporting bank.

“(3)The group funding debt for a tax year for the New Zealand banking group of a reporting bank means the amount calculated using the formula—

“where—

“SFIis the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group of interest-bearing debt calculated under generally accepted accounting practice for a group quarter day

“FIDis the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group, on a group quarter day, of financial arrangements—

“(a)for which the consolidated financial statements of the New Zealand banking group would show, in the corresponding income year of the reporting bank, a deduction—

“(i)under 1 or more of sections DB 6 to DB 8; and

“(ii)other than as a consequence of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and

“(b)that do not contribute to item SFI

“FTEis the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group, on a group quarter day, of shares that contribute to item SFI

“NQis the number of group quarter days in the corresponding income year of the registered bank.

“(4)For a measurement day in an income year of a reporting bank, the adjustment amount for a reporting bank is the amount calculated using the formula—

“where—

“NETis the net equity threshold for the New Zealand banking group for the measurement day

“NZEis the lesser of—

“(a)the net equity threshold for the New Zealand banking group for the measurement day:

“(b)the New Zealand net equity for the New Zealand banking group for the measurement day

“Iis the financial value for the New Zealand banking group, on the last day of the income year, of expenditure that—

“(a)is incurred by a member of the New Zealand banking group in the income year; and

“(b)is an interest expense under generally accepted accounting practice, incurred other than in relation to a share that contributes to item SFI, or is a deduction referred to in paragraph (a) of the definition of item FID in subclause (3)

“GFDis the group funding debt for the tax year for the New Zealand banking group

“PDis the number of days in the measurement period that corresponds to the measurement day

“YDis the number of days in the income year.

“(5)If this Act requires that the annual total deduction for a reporting bank for an income year be apportioned between 2 or more parts of the income year, the adjustment amount under subsection (4) for a measurement day in the income year is attributed to the part containing the measurement day.

“(6)In this section, group quarter day for a registered bank and a tax year means a day—

“(a)that is the last day of a quarter in the corresponding income year of the registered bank; and

“(b)on which the registered bank is a reporting bank.

“FG 8CNew Zealand banking group of registered bank

“(1)The New Zealand banking group of a registered bank for a measurement period consists of every person or fixed establishment that on the measurement day for the measurement period is—

“(a)a member under subsection (2) or a potential member under subsection (3) or (4); and

“(b)not excluded by an election under subsection (8).

“(2)If the registered bank—

“(a)is resident in New Zealand, the registered bank is a member:

“(b)is not resident in New Zealand, a fixed establishment in New Zealand of the registered bank is treated as being a person who is—

“(i)separate from the registered bank; and

“(ii)a member.

“(3)A person who is a New Zealand resident is a potential member if—

“(a)the person satisfies subsection (5) and—

“(i)the registered bank is resident in New Zealand; and

“(ii)there is no non-resident who is an ultimate parent of the registered bank under subsection (9):

“(b)the person satisfies subsection (6) and—

“(i)the registered bank is a non-resident; and

“(ii)there is no non-resident who is an ultimate parent of the registered bank under subsection (9):

“(c)the person satisfies subsection (7) and there is a non-resident who is an ultimate parent of the registered bank under subsection (9).

“(4)A fixed establishment in New Zealand of a non-resident is treated as being a person who is separate from the non-resident and a potential member if—

“(a)the fixed establishment satisfies subsection (6) and—

“(i)the registered bank is a non-resident; and

“(ii)there is no non-resident who is an ultimate parent of the registered bank under subsection (9):

“(b)the fixed establishment satisfies subsection (7) and there is a non-resident who is an ultimate parent of the registered bank under subsection (9).

“(ii)would be required to include the person and the registered bank but for relevant materiality thresholds:

“(b)the person is in the same group of companies as the registered bank under section IG 1(2).

“(6)A person or fixed establishment satisfies this subsection if,—

“(a)under generally accepted accounting practice, the person or fixed establishment would be required to be included in consolidated group accounts with the registered bank if—

“(i)the registered bank were resident in New Zealand; and

“(ii)the relevant materiality thresholds were satisfied:

“(b)the person is in the same group of companies as the registered bank under section IG 1(2).

“(7)A person or fixed establishment satisfies this subsection if,—

“(a)under generally accepted accounting practice, the person or fixed establishment would be required to be included in consolidated group accounts with the ultimate parent of the registered bank if—

“(i)the ultimate parent were resident in New Zealand; and

“(ii)the relevant materiality thresholds were satisfied:

“(b)the person is in the same group of companies as the ultimate parent under section IG 1(2).

“(8)A reporting bank may elect under this subsection to exclude from the New Zealand banking group of the reporting bank—

“(a)a person or a fixed establishment, whose main activity is the providing of life insurance:

“(b)a person who—

“(i)is resident in New Zealand; and

“(ii)has a voting interest of 100% in a person who is excluded by an election under paragraph (a); and

“(iii)does not have a main activity that is banking, financing or leasing; and

“(iv)does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing:

“(c)a fixed establishment of a non-resident, if—

“(i)the non-resident has a voting interest of 100% in a person who is excluded by an election under paragraph (a); and

“(ii)the fixed establishment has a main activity of financing the person who is excluded by the election under paragraph (a); and

“(iii)the fixed establishment does not have a main activity that is banking, financing or leasing, other than the activity referred to in subparagraph (ii); and

“(iv)the fixed establishment does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing:

“(d)a person who—

“(i)is resident in New Zealand; and

“(ii)under generally accepted accounting practice is required for the making of financial reports to be included in consolidated group accounts with a person or fixed establishment who is excluded by an election under paragraph (a) or (b); and

“(iii)does not have a main activity that is banking, financing or leasing; and

“(iv)does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing.

“(9)For the purposes of this section, the ultimate parent of a registered bank is a company—

“(a)that has an ownership interest in the registered bank, calculated under section FG 2, of 50% or more; and

“(b)in which no ownership interest, as calculated under section FG 2, is held by a company that holds an ownership interest in the registered bank, calculated under section FG 2, of 50% or more.

“(10)For the purposes of this section, the ultimate parent of a fixed establishment in New Zealand of a registered bank is the registered bank.

“FG 8DReporting bank for New Zealand banking group

“(1)For a New Zealand banking group that on a day includes a single registered bank, or includes no registered bank but includes a fixed establishment of a single registered bank, the reporting bank for the day is the registered bank.

“(2)For a New Zealand banking group that on a day includes more than 1 registered bank, the reporting bank for the day is—

“(a)the registered bank that first gives notice to the Commissioner of an election to be the reporting bank, if the Commissioner receives such a notice by the day that is 6 months after the end of the tax year in which the day occurs:

“(b)the registered bank chosen by the Commissioner, if paragraph (a) does not apply.

“(3)For a New Zealand banking group that on a day includes no registered bank but includes fixed establishments of more than 1 registered bank, the reporting bank for the day is—

“(a)the registered bank that first gives notice to the Commissioner of an election to be the reporting bank, if the Commissioner receives such a notice by the day that is 6 months after the end of the tax year in which the day occurs:

“(b)the registered bank chosen by the Commissioner, if paragraph (a) does not apply.

“FG 8EMeasurement periods and measurement days

“(1)For the New Zealand banking group and income year of a reporting bank, the measurement periods are—

“(a)the quarters in the income year, if the reporting bank does not make an election under paragraph (b) or (c):

“(b)each calendar month of the income year, if the reporting bank elects that the New Zealand banking group have such measurement periods:

“(c)each day of the income year, if the reporting bank elects that the New Zealand banking group have such measurement periods.

“(2)For the New Zealand banking group and income year of a reporting bank, the measurement days are each last day of each measurement period if the measurement periods are given by subsection (1)(a) or (b).

“(3)If there is a change in the identity of the reporting bank for a New Zealand banking group, the measurement period corresponding to the first measurement day for the new reporting bank begins on the day after the last measurement day for the former reporting bank.

“FG 8FFinancial value and regulatory value

“(1)In sections FG 8B to FG 8J, the financial value of an item for a New Zealand banking group at a time is the amount that would be recorded for the item in financial statements for the New Zealand banking group that—

“(a)related to the time; and

“(b)were prepared for external reporting purposes; and

“(c)were produced consistently with generally accepted accounting practice at the time by—

“(i)consolidating the financial statements for the members of the New Zealand banking group that are in the same group of companies; and

“(ii)if more than 1 consolidation is required under subparagraph (i), combining the consolidated financial statements so as to eliminate inter-group transactions.

“(2)In sections FG 8B to FG 8J, the regulatory value of an item for a New Zealand banking group at a time is the total risk-weighted value for the item that would be obtained for the New Zealand banking group if the New Zealand banking group were a banking group for the purposes of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand acting in the prudential supervision of registered banks under the Reserve Bank of New Zealand Act 1989.

“FG 8GNew Zealand net equity of New Zealand banking group

“(1)The New Zealand net equity of the New Zealand banking group of a registered bank for a measurement day is given by the following formula:

“EQVis the sum of the following amounts for the New Zealand banking group:

“(a)the financial value for the measurement day of—

“(i)the shareholders' equity for the New Zealand banking group; and

“(ii)the branch equity relating to fixed establishments of the New Zealand banking group:

“(b)the financial value for the measurement day of shares, each of which—

“(i)is issued by a member of the taxpayer's New Zealand banking group; and

“(ii)does not contribute to the amount referred to in paragraph (a):

“(c)the financial value for the measurement day of financial arrangements, each of which is a loan, or the provision of funds by a non-resident to its fixed establishment that—

“(i)is not taken into account in the calculation of the group funding debt of the New Zealand banking group; and

“(ii)is made by a non-resident who is not a member of the New Zealand banking group and is associated with a member of the New Zealand banking group under section OD 7 or OD 8(3); and

“(iii)is made to a member of the New Zealand banking group; and

“(iv)does not contribute to the amount referred to in paragraph (a); and

“(v)does not give rise to interest expenditure other than as a result of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and

“(vi)does not relate to a supply of goods or services

“FRSis the financial value for the measurement day of fixed rate shares, each of which is—

“(a)issued by a member of the New Zealand banking group; and

“(b)owned by a person who is resident in New Zealand; and

“(c)included in the value of item EQV; and

“(d)issued by the member—

“(i)on or after 1 January 2005:

“(ii)before 1 January 2005, if the measurement period begins on or after 1 January 2010

“EIDis the financial value for the measurement day of financial arrangements, each of which—

“(a)is taken into account under paragraph (a) or (b) of the definition of item EQV in calculating the value of that item; and

“(b)gives rise to a deduction for the tax year under 1 or more of sections DB 6 to DB 8 for a member of the New Zealand banking group

“UPBis the financial value for the measurement day of unvested policyholder benefit liabilities and policy-holder retained profits that contribute to the value of item EQV

“INTGis the financial value for the measurement day of intangible assets, other than—

“(a)goodwill relating to a business that is not banking, financing, leasing, or life insurance and that—

“(i)is acquired from a person who, at the time of acquisition, is not associated under section OD 7 or OD 8(3) with a member of the New Zealand banking group:

“(ii)relates to an entity that is acquired from a person who is not associated under section OD 7 or OD 8(3) with a member of the New Zealand banking group:

“(b)a film or film right:

“(c)property that is depreciable property or is expected to become depreciable property

“CGAis the sum for the measurement day of capital gain amounts, each of which arises for the 2004-05 or a later tax year from a transfer of an intangible asset between a member of the New Zealand banking group and a person who—

“(a)is not a member of the New Zealand banking group; and

“(b)is associated with a member of the New Zealand banking group under section OD 7 or OD 8(3)

“REVis the financial value for the measurement day of revaluation reserves that contribute to the value of item EQV

“TXBis the financial value for the measurement day of net future tax benefits that are taken into account in determining the value of item EQV and arise from—

“(a)net losses for the tax year:

“(b)losses carried forward from an earlier tax year:

“(c)timing or temporary differences to the extent that the items giving rise to the timing or temporary differences would contribute to a net loss for the tax year if the items were deductible in the tax year

“CEFAis the financial value for the measurement day of the credit enhancements provided by members of the New Zealand banking group, each of which is, for the purpose of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand,—

“(a)a credit enhancement that is provided to an associated funds management and securitisation scheme of a non-member:

“(b)a credit enhancement that is provided to an affiliated insurance group that is a non-member and has not been expensed

“NAFAis the financial value for the measurement day of advances by members of the New Zealand banking group, each of which is, for the purpose of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand, an advance of a capital nature to a connected person who is not a member of the New Zealand banking group

“EOIis the amount that would, if the New Zealand banking group included the potential members of the New Zealand banking group and before any set-off allowed under generally accepted accounting practice, be the financial value for the measurement day of shares in non-residents that—

“(a)are held by—

“(i)a member or potential member of the New Zealand banking group:

“(ii)a company resident in New Zealand in which a member or potential member of the New Zealand banking group holds a direct voting interest of 10% or more and that, in the income year, pays to the member or potential member a dividend to which a conduit tax relief credit is attached; and

“(b)are not interests in foreign investment funds for which the FIF income or loss is calculated using the comparative value method or the deemed rate of return method; and

“(c)are not shares in a grey list company that—

“(i)are listed on the official list of a recognised exchange; and

“(ii)are revenue account property; and

“(iii)would not be a sufficient interest in the offshore company if the class of the shares were the only class of share issued by the offshore company

“NOIAis the notional offshore investment amount for the New Zealand banking group for the income year of the reporting bank, as defined in subsection (4)

“AEQis the financial value for the measurement day of interests, each of which is taken into account in calculating item EQV and is held by a person who—

“(a)is not a member of the New Zealand banking group; and

“(b)is not a member of the New Zealand banking group because of an election under section FG 8C(8); and

“(c)is resident in New Zealand or holds the interest through a fixed establishment in New Zealand

“AEQIis the financial value for the measurement day of—

“(a)shares in persons who are not members of the New Zealand banking group because of an election under section FG 8C(8):

“(b)loans, other than on arm's-length terms, to persons who are not members of the New Zealand banking group because of an election under section FG 8C(8).

“(2)Subsection (3) applies if a component of an item, other than the item NOIA, that is subtracted from the item EQV under subsection (1) is a component of 1 or more other such items.

“(3)The value of the component is included in a single item for which the value of the component is not less than the value of the component for each of the other items.

“(4)The notional offshore investment amount for a New Zealand banking group for an income year of the reporting bank for the New Zealand banking group is the greater of zero and the amount given by the following formula:

“where—

“FTCis the total for the tax year of foreign tax credits each of which—

“(a)is claimed as a credit against the income tax liability for the tax year of—

“(i)a member of the New Zealand banking group:

“(ii)a person who is excluded from the New Zealand banking group by an election under section FG 8C(7); and

“(b)does not arise from attributed CFC income or from FIF income; and

“(c)does not arise from income derived before 1 July 2005

“DMTis the amount—

“(a)set by the Governor-General by Order in Council as the threshold amount for the application of this subsection; or

“(b)equal to $5,000,000, if no threshold amount is set under paragraph (a) and paragraph (c) does not apply; or

“(c)equal to $416,667 multiplied by the number of months beginning on or after 1 July 2005 in the corresponding income year for the reporting bank, if the corresponding income year includes that date and no threshold amount is set under paragraph (a)

“CRTis the rate of tax for companies referred to in schedule 1, part A, item 5 for the tax year

“IRRis the amount—

“(a)set by the Governor-General by Order in Council as the interest rate of return for the purposes of this subsection; or

“(b)of 7% per year, if no interest rate of return is set under paragraph (a)

“NMis the number of months beginning on or after 1 July 2005 in the income year of the reporting bank for the New Zealand banking group.

“(5)The Governor-General may, from time to time by Order in Council,—

“(a)specify a type of instrument that is included in item EQV for the purposes of subsection (1):

“(b)specify a type of instrument that is not included in item EQV for the purposes of subsection (1):

“(c)set, replace, or repeal a figure for a threshold amount for a value of an instrument, or aggregate value of a type of instrument, held by a person or group of persons for the purposes of a specification under paragraph (a) or (b):

“(d)amend or delete a specification under paragraph (a) to (c):

“(e)set, replace, or repeal a figure for the threshold amount for the purposes of paragraph (a) of the definition of item DMT in subsection (4):

“(f)set, replace, or repeal a figure for the interest rate of return for the purposes of paragraph (a) of the definition of item IRR in subsection (4).

“(6)An Order in Council under subsection (5) may—

“(a)come into effect on or after 1 July 2005:

“(b)apply for measurement periods and quarters that—

“(i)are in the 2005-06 or a subsequent income year; and

“(ii)commence on or after 1 July 2005.

“FG 8HNet equity threshold

“(1)The net equity threshold for a measurement day for the New Zealand banking group of a registered bank is given by the following formula:

0.04 x (RWE – DEQ)

“where—

“RWEis the sum of the following values for the measurement day:

“(a)for an asset that is included in a balance sheet, the regulatory value of the asset:

“(b)for an exposure that is not included in a balance sheet, the regulatory value of the exposure:

“(c)for goodwill that is not taken into account in calculating item INTG in determining the New Zealand net equity of the New Zealand banking group, the financial value of the goodwill

“DEQis the total of the regulatory values for the measurement day of items, other than item NOIA, that are deducted from item EQV in determining the New Zealand net equity of the New Zealand banking group.

“(2)For the purposes of subsection (1), the assets of a fixed establishment include the assets that are treated as being the assets of the fixed establishment under generally accepted accounting practice.

“FG 8IValuation of debt and risk-weighted exposures

For the purposes of sections FG 8B to FG 8H, the value on a day of a financial arrangement or risk-weighted exposure that is denominated in a foreign currency must be determined—

“(a)in New Zealand currency; and

“(b)using the close of trading spot exchange rate for the foreign currency on the day.

A change in a quantity that, but for this subsection, would produce a temporary change in the New Zealand net equity or net equity threshold of the New Zealand banking group of a registered bank does not affect the value of the New Zealand net equity or net equity threshold if the change is produced by an arrangement that has an effect of defeating the intent and application of sections FG 8B to FG 8I.”

59Circumstances in which group excess interest allocation required

“(1)Subject to subsection (2), the group excess interest allocation rules in sections FH 5 to FH 8 apply for a tax year to a company that—

“(a)for the imputation year that corresponds with the tax year—

“(i)is a dividend withholding payment account company or a conduit tax relief company; and

“(ii)is not a member of a New Zealand banking group for a registered bank; and

“(b)in the corresponding income year—

“(i)derives foreign attributed income:

“(ii)is paid a dividend from which the company must deduct an amount of dividend withholding payment or would have to deduct such an amount but for section NH 7.”

60New subpart FI inserted

After subpart H of Part F, the following is inserted:

“Subpart I—Effect of certain disposals and resulting acquisitions

“FI 1Disposals and resulting acquisitions to which subpart FI applies

“(1)The purpose of this subpart is to provide a disposal value in respect of the disposals and a cost price in respect of the resulting acquisitions of property for transactions to which subsections (2) and (3) refer.

“(2)This subpart applies to a transaction that is of a type referred to in subsection (3).

“(3)This subpart applies to a transaction that is—

“(a)a distribution of property made by a trustee of a trust to a beneficiary of that trust:

“(b)a distribution in kind made by a company—

“(i)to a shareholder of that company, or to a person in a shareholding relationship with that company; and

“(ii)to which section CD 5 applies; and

“(iii)that is a transfer of value to which section CD 3(1)(a) refers:

“(c)a gift made by one person to another person:

“(d)a transfer of an estate of a deceased person to an administrator or executor of the estate occurring as a result of the death of a person:

“(e)a distribution of property made by an administrator, executor, or trustee of the estate of a deceased person to a person who is beneficially entitled to receive the property under a will or an intestacy:

“(f)a settlement of property by one trust on another trust, if authorised—

“(i)under a trust instrument as a power of advancement or resettlement:

“(ii)under section 41 of the Trustees Act 1956 as the payment of money or the application of property.

“FI 2Disposal and resulting acquisition of property treated as occurring at market value

“(1)A transaction to which this subpart applies is to be treated as—

“(a)a disposal at market value by the person who disposes of the property; and

“(b)an acquisition at market value by the recipient of the property.

“(2)In this Act, the market value of property that a person receives from a transaction to which this subpart applies is the market value of the property for the person from whom the property was received.

“FI 3Date on which disposal and resulting acquisition treated as occurring

“(1)Unless subsection (2) applies, the person who disposes of property in a transaction to which section FI 1 refers and the person who receives the property must treat the disposal as occurring on the date on which the transaction occurs.

“(2)On the happening of a transaction to which section FI 1(3)(d) refers, the personal representatives of the deceased person and the recipient of the property must treat the disposal as occurring immediately before the person died.

“FI 4Disposal and resulting acquisition of property by spouse or de facto partner on death of person

On the death of a person, a disposal under the terms of a will or intestacy to the surviving spouse or de facto partner of the deceased person of property to which section FI 1(3)(d) or (e) refers is treated as a matrimonial property disposition to which subpart FF applies, unless—

“(a)a person who is not within the second degree of relationship to the deceased is beneficially entitled to property; and

“(b)the property is—

“(i)revenue account property:

“(ii)an interest in a FIF:

“(iii)a financial arrangement other than a financial arrangement in respect of which the deceased person or a trustee of the deceased person was a cash basis person:

“(iv)an item in respect of which a person has an amount of depreciation loss under section EE 1(2).

“FI 5Distributions of property to close relatives and others

“(1)This section applies to a transaction to which section FI 1(3)(e) refers if persons who are related within the second degree of relationship to the deceased person, or persons who are exempt under section CW 36, are—

“(a)the sole beneficiaries of the property of the deceased person:

“(b)beneficiaries of the deceased person and the sole beneficiaries of property of the deceased person that is—

“(i)revenue account property:

“(ii)an interest in a FIF:

“(iii)a financial arrangement other than a financial arrangement in respect of which the deceased person or a trustee of the deceased person was a cash basis person:

“(iv)an item in respect of which a person has an amount of depreciation loss under section EE 1(2).

“(2)A disposal and acquisition of property to which this section applies is treated as a transaction to which subpart FF applies, if—

“(a)the terms of the testamentary instrument or intestacy of the deceased person establish no life interest; and

“(b)other than for the period in which the property is subject to administration or executorship, the terms of the testamentary instrument or intestacy of the deceased person require that no property of the deceased person be held in trust; and

“(c)in a tax year during which the property is subject to administration or executorship or in which the property is held in trust, the net income of the estate is distributed beneficially to the maximum extent that is allowable under the terms of the will or intestacy and that is consistent with the legal obligations of the trustee.

“FI 6Disposal and resulting acquisition of timber

If a transaction to which section FI 1(3)(d) or (e) refers involves the disposal and acquisition of property that is timber, standing timber, or the right to take timber, the disposal is treated as a transaction to which subpart FF applies if the recipient of the property is within the second degree of relationship to the deceased person.

“FI 7Relationship of section FI 2(2) to subpart CB

“(1)This section applies to a transaction to which section FI 1(3)(d) or (e) refer if—

“(a)persons who are related within the second degree of relationship to the deceased person receive an interest in property that is land; and

“(b)the sale of the interest in the land, if sold by the deceased person, would result in income to the deceased person under any of sections CB 7, CB 8, CB 9, or CB 10.

“(2)When this section applies, sections CB 7, CB 8, CB 9, and CB 10 do not apply to a transaction to which any of section FI 1(3)(d) or (e) refers.

“(3)If a disposal of an interest in land by an administrator or executor or beneficiary of the estate of a deceased person within 10 years of its acquisition by the deceased person results in income under any of sections CB 7, CB 8, CB 9, or CB 10, the cost of the interest in the land to the administrator or executor or beneficiary is the cost of the interest to the deceased person plus all other costs incurred by the deceased person and the administrator or executor or beneficiary not previously deducted under this Act.

“FI 8Relationship of subpart FI to unexpired prepayments

If property subject to section EA 3 is disposed of in a transaction to which section FI 1(3)(d) or (e) refers and would be valued under section FI 2 in the absence of this section, the property must be valued under section EA 3(4) to (7), as the circumstances require, as if the date of valuation is the end of an income year.

“FI 9Death occurring before 1 October 2005

“(1)This section applies to a transaction to which section FI 1 refers that involves the disposal of property to an administrator, or executor, or trustee on the death of a person if—

“(a)the death occurred before 1 October 2005; and

“(b)in the year in which the transaction occurred,—

“(i)each beneficiary of the deceased person is a New Zealand resident; and

“(ii)no amount of the income of the beneficiary is exempt income under section CW 36; and

“(c)the tax returns of the deceased person and of the resulting estate that are provided to the Commissioner in respect of the income year in which the death occurred are calculated on the basis that all the property of the deceased person was disposed of immediately before death—

“(i)at market values; or

“(ii)at the values given by subpart FF for property of that type; or

“(iii)at a combination of the values in subparagraphs (i) and (ii); and

“(d)the administrator or executor adopted for taxation purposes the value referred to in paragraph (c) for the property.

“(2)For the purposes of the Income Tax Act 1994 and this Act, the value used in the tax returns of the deceased person and the estate for the disposal value and the cost price of the property involved in the transaction is treated as correct.

“(3)Despite subsection (2), if an enactment contained in the Income Tax Act 1994 or this Act prescribes the adoption of a market value on a disposal by an administrator or executor or trustee of the estate of the deceased person on the death of the deceased person, that market value must be adopted in a tax return provided to the Commissioner.

“FI 10Value of property acquired by beneficiary of trust before 1 October 2005

“(1)This section applies to a transaction to which section FI 1 refers that involves the disposal of property to a beneficiary by an administrator or executor or trustee if—

“(a)the transaction occurred before 1 October 2005; and

“(b)the beneficiary was a New Zealand resident when the beneficiary acquired the property; and

“(c)no amount of the income of the beneficiary is exempt income under section CW 36; and

“(d)the tax returns of the estate and of the beneficiary provided to the Commissioner in respect of the income year in which the transaction occurred are calculated on the basis that—

“(i)the distributed property was disposed of at market value; or

“(ii)the disposition of the estate was a disposition and acquisition of the property at values given by subpart FF for property of that type; or

“(iii)the value of the property was a combination of the values given by paragraphs (d)(i) or (ii); and

“(e)the beneficiary adopted for taxation purposes the value referred to in paragraph (d) for the property.

“(2)For the purposes of the Income Tax Act 1994 and this Act, the value used in the tax returns of the estate and the beneficiary for the disposal value and the cost price of the property involved in the transaction is treated as correct.

“(3)Despite subsection (2), if an enactment contained in the Income Tax Act 1994 or this Act prescribes the adoption of a market value on a disposal by an administrator or executor or trustee of the estate of a deceased person, that market value must be adopted by the administrator, executor, or trustee, and a beneficiary in the tax returns they provide to the Commissioner.

“FI 11Disposal of certain financial arrangements on death

If property is disposed of in a transaction to which section FI 1(3)(d) or (e) refers and the trustee of the deceased person's estate is a cash basis person under section EW 60(1), the property must be valued at cost and not under section FI 2.”

65Income of beneficiaries

66Liability for tax payable by company left with insufficient assets

“(b)an effect of that arrangement is that the company is unable to satisfy under this Act a liability (called in this section the tax liability) of the company, whether arising before or after the arrangement is entered, for—

“(i)income tax:

“(ii)a civil penalty:

“(iii)an amount payable under Part 7 of the Tax Administration Act 1994; and”.

(2)In section HK 11(4)(c), “(exclusive of any late payment penalty or interest arising under this Act or the Tax Administration Act 1994 for late payment of any part of the tax liability)” is replaced by “(excluding a civil penalty or an amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax liability)”.

(a)“any late payment penalty or interest arising under this Act or the Tax Administration Act 1994 for late payment, which comprises part of the tax liability” is replaced by “a civil penalty or an amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax liability”:

(b)“(exclusive of any such late payment penalty or interest)” is replaced by “(excluding the civil penalty or the amount payable under Part 7 of the Tax Administration Act 1994)”.

67Rebate for gifts of money

In section KC 5(1)(co), “Trust.” is replaced by “Trust:” and the following is added:

“(cp)Habitat for Humanity New Zealand Limited.”

68Determination of amount of credit in certain cases

“(hb)in the case of an imputation credit carried forward to a later income year under section LB 2(3C) as a credit of tax, the amount of the credit of tax carried forward reduced by any amount of the credit that is extinguished by the Commissioner under section 177C of the Tax Administration Act 1994:”.

(a)“There is no refund to the taxpayer of any credit of tax under this section” is replaced by “For a taxpayer referred to in subsection (2B), no refund of a credit of tax under this section is available”:

“(3B)For a taxpayer other than a taxpayer referred to in subsection (2B), no refund of a credit of tax under this section is available, but if the whole of the credit of tax is not credited under subsection (2) against the taxpayer's income tax liability for the income year, subsection (3C) applies to the amount of the credit of tax that remains.

“(3C)The remaining credit of tax for an income year is treated in the following ways, applied in the alphabetical order of the paragraphs so far as the credit of tax extends:

“(a)carried forward as a credit of tax to the next income year:

“(b)reduced by any amount extinguished under section 177C(5B) of the Tax Administration Act 1994 by the Commissioner in that next income year:

“(c)reduced by any amount credited against the taxpayer's income tax liability for that next income year:

“(d)treated under this subsection as a remaining credit of tax for that next income year.”

77New sections ME 9B and ME 9C inserted

“ME 9BImputation credit account company leaving wholly-owned group

“(1)This section applies to an imputation credit account company (called the leaving company) if, at a time in the income year of the leaving company that corresponds to a tax year,—

“(a)there is a change in the ultimate owners of the leaving company; and

“(b)as a result of the change, the leaving company ceases to be a member of a wholly-owned group of companies (called the former group); and

“(c)the total amount of the available net losses from the previous tax year for the members of the former group exceeds $1,000,000.

“(2)If the leaving company at the time has a debit balance in its imputation credit account, the leaving company—

“(a)may elect that an amount that is not more than the debit balance be—

“(i)a debit in the imputation credit account of another imputation credit account company that is a member of the former group and for which there is no change in ultimate owners at the time; and

“(ii)a credit in the imputation credit account of the leaving company:

“(b)may elect to pay an amount of tax by way of additional income tax that is equal to—

“(i)the amount of the debit balance, if the leaving company makes no election under paragraph (a):

“(ii)the amount by which the debit balance exceeds the amount that is subject to the election under paragraph (a).

“(3)If the leaving company at the time is entitled to an amount in a pooling account or would be entitled, in the absence of section MD 2, to a refund under section MD 1 of an amount of excess tax, subsection (4) applies to the following amount (called the excess entitlement):

“(a)zero, if at the time the credit balance in the imputation credit account of the leaving company equals or exceeds the total of the following amounts:

“(i)the amount that would be the entitlement under section MD 1:

“(ii)the amount in a tax pooling account that has been provided by or for the benefit of the leaving company and would exceed the liability at the time of the leaving company to pay income tax or provisional tax:

“(b)the total of the amounts referred to in paragraph (a)(i) and (ii), if at the time there is no credit balance in the imputation credit account of the leaving company:

“(c)the amount by which the credit balance in the imputation credit account of the leaving company at the time is exceeded by the total of the amounts referred to in paragraph (a)(i) and (ii), if neither of paragraphs (a) and (b) applies.

“(4)If the leaving company at the time has an excess entitlement, the leaving company—

“(a)may elect that an amount that is not more than the excess tax payment for the company be—

“(i)treated as having been paid, as income tax or provisional tax, on behalf of another imputation credit account company that is a member of the former group and for which there is no change in ultimate owners at the time; and

“(ii)not treated as having been paid as income tax or provisional tax by the leaving company:

“(b)may elect to pay an amount of tax by way of additional income tax equal to—

“(i)the amount of the excess entitlement, if the leaving company makes no election under paragraph (a); or

“(ii)the amount, by which the excess tax payment exceeds the amount that is subject to the election under paragraph (a).

“(5)A leaving company or a former group may satisfy a liability to pay additional income tax under subsection (2) or (4) by treating an excess tax payment of the leaving company or the former group as a payment towards the satisfaction of the liability.

“(6)If the leaving company elects to pay an amount of additional income tax under subsection (2)(b) or (4)(b) that exceeds the amount of any payment under subsection (5), the additional income tax must be paid to the Commissioner by the 20th day of the month following the month in which the leaving company leaves the former group.

“(7)The former group is jointly liable with the leaving company for additional income tax payable under subsection (6).

“(8)A payment of additional income tax under subsection (2) or (4) does not satisfy any other liability of the leaving company or the former group.

“(9)An election under subsection (2) or (4) must be—

“(a)in a form the Commissioner may require; and

“(b)made by the leaving company; and

“(c)accompanied by notice of agreement from the company who receives the debit under subsection (2) or is treated under subsection (4) as having the benefit of the excess tax payment; and

“(d)be made before the company leaves the group or within a further period that the Commissioner may allow if satisfied that the company had insufficient information to make an appropriate election at the time the company left the group.

“(10)In this section,—

“(a)an ultimate owner of a company means a person—

“(i)who has an ownership interest in the company, calculated under section FG 2; and

“(ii)in whom no ownership interest, as calculated under section FG 2, is held by a person who holds an ownership interest in the company, calculated under section FG 2, of 50% or more:

“(b)excess tax payment, for a company at a time, means the amount at the time by which payments made by or on behalf of the company to the Commissioner for income tax or provisional tax exceed the liability at the time of the company to pay income tax and provisional tax.

“ME 9CImputation credit account company joining wholly-owned group

“(1)This section applies to an imputation credit account company (called the joining company) if, at a time in the income year of the joining company that corresponds to a tax year,—

“(a)the joining company becomes a member of a wholly-owned group of companies (called the new group); and

“(b)the joining company was formerly a member of a wholly-owned group (called the former group) having ultimate owners that differed from the ultimate owners of the new group; and

“(c)the total amount of the available net losses from the previous tax year for the members of the former group exceeds $1,000,000.

“(2)Subsection (3) applies to the joining company if—

“(a)the joining company at the time has a debit balance in its imputation credit account; and

“(b)the debit balance includes debits (called the former group debits)—

“(i)that arose in the imputation credit account when the joining company was a member of the former group; and

“(ii)upon which additional income tax under section ME 9B(2) was not paid by the joining company or former group.

“(3)The joining company must pay an amount of tax by way of additional income tax that is equal to the amount of the former group debits.

“(4)If the joining company at the time is entitled to an amount in a pooling account or would be entitled, in the absence of section MD 2, to a refund under section MD 1 of an amount of excess tax relating to a time when the joining company was in the former group, subsection (5) applies to the following amount (called the excess entitlement):

“(a)zero, if at the time the credit balance in the imputation credit account of the joining company equals or exceeds the total of the following amounts:

“(i)the amount that would be the entitlement under section MD 1:

“(ii)the amount in a tax pooling account that has been provided by or for the benefit of the joining company and would exceed the liability at the time of the joining company to pay income tax and provisional tax:

“(b)the total of the amounts referred to in paragraph (a)(i) and (ii), if at the time there is no credit balance in the imputation credit account of the joining company:

“(c)the amount by which the credit balance in the imputation credit account of the joining company at the time is exceeded by the total of the amounts referred to in paragraph (a)(i) and (ii), if neither of paragraphs (a) and (b) applies.

“(5)If the joining company at the time has an excess entitlement, the joining company must pay an amount of tax by way of additional income tax equal to the amount of the excess entitlement.

“(6)A joining company or a new group may satisfy a liability to pay additional income tax under subsection (3) or (5) by treating an excess tax payment of the joining company or the new group as a payment towards the satisfaction of the liability.

“(7)If the joining company must pay an amount of additional income tax under subsection (3) or (5) that exceeds the amount of any payment under subsection (6), the additional income tax must be paid to the Commissioner by the 20th day of the month following the month in which the joining company joins the new group.

“(8)The new group is jointly liable with the joining company for additional income tax payable under subsection (3) or (5).

“(9)A payment of additional income tax under subsection (3) or (5) does not satisfy any other liability of the joining company or the new group.

“(10)In this section,—

“(a)an ultimate owner of a company means a person—

“(i)who has an ownership interest in the company, calculated under section FG 2; and

“(ii)in whom no ownership interest, as calculated under section FG 2, is held by a person who holds an ownership interest in the company, calculated under section FG 2, of 50% or more:

“(b)excess tax payment, for a company at a time, means the amount at the time by which payments made by or on behalf of the company to the Commissioner for income tax or provisional tax exceed the liability at the time of the company to pay income tax and provisional tax.”

(2)Subsection (1) applies for a company that leaves a wholly-owned group on or after 16 November 2004.

“(3B)Sections ME 9B and ME 9C and sections 97, 101, 139B, 140B, 140D, and 180 of the Tax Administration Act 1994 apply, with any necessary modifications, to a consolidated imputation group and its imputation credit account as if—

“(a)it were a single company; and

“(b)each reference to a provision of this Act were a reference to the equivalent provision applicable to consolidated imputation groups; and

“(c)each reference to liability of a company for additional income tax, late payment penalty, or imputation penalty tax were (subject to the application of section HB 1(2) to (5)) a reference to joint and several liability for that tax of each company which is a member of the group at the time the additional income tax, late payment penalty, or imputation penalty tax becomes payable.”

“(1A)A person is liable to pay to the Commissioner, in relation to a payment that is or includes resident withholding income, a tax (called resident withholding tax) of an amount given by subsection (1) or (1B) if—

“(a)the person makes the payment and is required to make a deduction of resident withholding tax from the payment:

“(b)the person is an RWT proxy for the payer of the resident withholding income, the recipient of the resident withholding income, and the resident withholding income.

“(1AB)A person who makes a payment that is or includes resident withholding income must deduct resident withholding tax from the payment if the person is not excluded by the rest of this section from liability to make the deduction.”

(4)In section NF 2(1), the words before paragraph (a) are replaced by “If a person makes a payment that is or includes resident withholding income and is required to deduct resident withholding tax from the payment, the person must make a deduction—”.

“(1B)A person who is an RWT proxy for a payer of resident withholding income and a payment of resident withholding income in the form of a dividend must pay to the Commissioner the amount of resident withholding tax given by the following formula:

83Election to apply higher rate of deduction

“(1)A person entitled to receive a payment to which section NF 2(1) or (1B) relates may elect, in the manner required by the payer or RWT proxy, that the payment be subject to resident withholding tax at a rate specified in schedule 14, clause 1(a), (b), or (c).”

84Payment of deductions of resident withholding tax to Commissioner

“(9)For the purposes of this section, an RWT proxy who is required to pay resident withholding tax in relation to a payment of resident withholding income is treated as having deducted the resident withholding tax from the payment at the time of the payment.”

(4)After the definition of child tax credit, the following is inserted:

“civil penalty is defined in section 3(1) of the Tax Administration Act 1994”.

(5)After the definition of consolidation rules, the following is inserted:

“contaminant means a contaminant as defined in section 2(1) of the Resource Management Act 1991”.

(6)The definition of diminished valu is replaced by the following:

“diminished value, for an income year, means the amount calculated using the formula—

a + b – c

“where—

“ais the amount of expenditure—

“(a)on an improvement described in section DO 4 (Improvements to farm land), DO 4C (Expenditure on land: planting of listed horticultural plants), DO 4D (Expenditure on land: horticultural replacement planting), DO 6 (Improvements to aquacultural business), or DP 3 (Improvements to forestry land); or

“(b)of a type described in section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant):

“bis the total amount of income derived under section CB 24B(8) (Environmental restoration accounts) in relation to the expenditure:

“cis the total of every amount allowed as a deduction for the expenditure to any person—

“(a)in any earlier income year under this Act or an earlier Act:

“(b)in the income year under this Act, except an amount allowed in the income year under section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant), section DO 4C (Expenditure on land: planting of listed horticultural plants), DO 4D (Expenditure on land: horticultural replacement planting), DO 6 (Improvements to aquacultural business), or DP 3 (Improvements to forestry land).”

(7)In the definition of dispose, in paragraph (e), “destroy” is replaced by “destroy:” and the following is added:

“(f)in subpart FI (Effect of certain disposals and resulting acquisitions), means a disposal of property in the manner provided for in section FI 1 (Disposals and resulting acquisitions to which subpart FI applies)”.

(10)After the definition of expenditure on account of an employee, the following is inserted:

“exploration and development activities is defined in section CW 45B (Non-resident company involved in exploration and development activities) for the purposes of that section”.

(11)The definition of finance lease is replaced by the following:

“finance lease means a lease of a personal property lease asset entered by a person on or after 20 May 1999 that,—

“(a)when the person enters the lease, involves or is part of an arrangement that involves—

“(i)the transfer of the ownership of the asset to the lessee or an associate of the lessee during or at the end of the term of the lease:

“(ii)the lessee or an associate of the lessee having the option of acquiring the asset for an amount that is likely to be substantially lower than the asset's market value on the date of acquisition:

“(iii)a right of an associate of the lessee to acquire the asset, or a right of the lessor to require an associate of the lessee to acquire the asset, during the term of the lease under an arrangement that does not entitle the associate to receive all of the personal property lease payments that may fall due after the acquisition:

“(b)when the person enters the lease or from a later time, involves a term of the lease that is more than 75% of the asset's estimated useful life as defined in section EE 54 (Meaning of estimated useful life)”.

(12)After the definition of financial statements, the following is inserted:

“financial value for the New Zealand banking group of a registered bank is defined in section FG 8F (Financial value and regulatory value) for the purposes of subpart FG (Apportionment of interest costs)”.

(13)Paragraph (e) of the definition of fixed rate share is replaced by the following:

(20)After the definition of maximum pooling value, the following is inserted:

“measurement day, for an income year of a reporting bank, means 1 of the measurement days for the income year defined in section FG 8E (Measurement periods and measurement days) for the purposes of subpart FG (Apportionment of interest costs)

“measurement period, for an income year of a reporting bank, means 1 of the measurement periods for the income year defined in section FG 8E (Measurement periods and measurement days) for the purposes of subpart FG (Apportionment of interest costs)”.

(21)After the definition of net balance due, the following is inserted:

“net equity threshold for the New Zealand banking group of a registered bank is defined in section FG 8H (Net equity threshold) for the purposes of subpart FG (Apportionment of interest costs)”.

(22)In paragraph (a) of the definition of net loss, “amount written off by the Commissioner under section 177C(4)” is replaced by “amount extinguished by the Commissioner under section 177C(5)”.

(23)After the definition of New Zealand, the following is inserted:

“New Zealand banking group, for a registered bank, means the New Zealand banking group that is given for the registered bank by section FG 8C (New Zealand banking group of registered bank) for the purposes of subpart FG (Apportionment of interest costs)”.

(24)After the definition of New Zealand group debt percentage, the following is inserted:

“New Zealand net equity, for a New Zealand banking group, is defined in section FG 8G(1) (New Zealand net equity of New Zealand banking group) for the purposes of subpart FG (Apportionment of interest costs)”.

(25)After the definition of notional income tax liability, the following is inserted:

“notional offshore investment amount, for a reporting bank, is defined in section FG 8G(4) (New Zealand net equity of New Zealand banking group) for the purposes of subpart FG (Apportionment of interest costs)”.

(26)After the definition of offshore development, the following is inserted:

“offshore permit area is defined in section CW 45B (Non-resident company involved in exploration and development activities) for the purposes of that section.”

(27)After the definition of partnership net income, the following is inserted:

“patent application date, for a patent and an application for a patent, means the date on which the application for the patent with a complete specification is lodged with the Intellectual Property Office of New Zealand or a similar office in another country or territory”.

(28)The definition of payment period is replaced by:

“payment period means the period of 56 days beginning after the date on which an application is made to receive the parental tax credit.”.

(29)After the definition of physical cost of production, the following is inserted:

“plant variety rights means proprietary rights granted for a plant variety under the Plant Variety Rights Act 1987 or similar rights given similar protection under the laws of a country or territory other than New Zealand.”.

(30)After the definition of registered, the following is inserted:

“registered bank means a registered bank as defined in section 2 of the Reserve Bank of New Zealand Act 1989”.

(31)After the definition of registered security, the following is inserted:

“regulatory value for the New Zealand banking group of a registered bank is defined in section FG 8F (Financial value and regulatory value) for the purposes of subpart FG (Apportionment of interest costs)”.

(32)After the definition of replacement permit, the following is inserted:

“reporting bank for a New Zealand banking group, means the reporting bank that is given for the New Zealand banking group by section FG 8D (Reporting bank for New Zealand banking group)”.

88Determination of residence of company

“(1B)For the purposes of this Act, a company acting as trustee of the Cook Islands National Superannuation Fund, as established by the Cook Islands National Superannuation Trust Deed under the Cook Islands National Superannuation Act 2000 (Cook Islands), is not resident in New Zealand.”

89New schedule 6B inserted

After schedule 6, schedule 6B in the schedule of this Act is inserted.

91Schedule 17—Depreciable intangible property

“11plant variety rights granted under the Plant Variety Rights Act 1987 or similar rights given similar protection under the laws of a country or territory other than New Zealand

“12a right to use plant variety rights granted under the Plant Variety Rights Act 1987 or a similar right under the laws of a country or territory other than New Zealand”.

92Schedule 22A—Identified policy changes

(1)In schedule 22A, after the entry relating to section DO 5, the following is inserted:

“DZ 13A deduction is allowed for expenditure of an amount given by section DO 4(3)(a) or (c) of the Income Tax Act 1994 and allowed as a deduction under section DO 4(1) of that Act, being expenditure incurred in carrying on a farming or agricultural business on land in New Zealand.”

(a)in the entry for section CQ 2, the first section number in column 2 is replaced by “CG 6(1)(a)”:

(b)in the entry for section CX 3, the entry in column 2 is replaced by “new”:

(c)in the entry for section DT 10, the entry in column 2 is replaced by “DM 1(7)(a)”.

Part 2Amendments to Income Tax Act 1994

94Income Tax Act 1994

This Part amends the Income Tax Act 1994.

95New section CB 16 inserted

The following is inserted after section CB 15:

“CB 16Non-resident company involved in exploration and development activities

“(1)An amount of income derived by a non-resident company from exploration and development activities in an offshore permit area is exempt income if it is derived in the period that starts on 1 January 2004 and ends on 31 December 2009.

“(2)In this section,—

“exploration and development activities means the following activities undertaken for the purposes of identifying and developing exploitable petroleum deposits or occurrences in an offshore permit area

“(a)operating a ship to provide seismic survey readings:

“(b)drilling an exploratory well or other well

“offshore permit area means an area of land that is—

“(a)in New Zealand; and

“(b)on the seaward side of the mean high-water mark; and

“(c)a permit area or part of a permit area.”

96Expenditure incurred by superannuation funds

(1)After section DI 3(2), the following is inserted:

“(2B)Subsection (2C) applies if,—

“(a)for the 2000-01 income year, the balance date of the second superannuation fund is earlier than the balance date of the first superannuation fund; and

“(b)the first superannuation fund has incurred expenditure of a kind described in subsection (2)(b) in the period that starts on the second superannuation fund's 2000-01 balance date and ends on the first superannuation fund's 2000-01 balance date.

“(2C)Despite subsection (2)(c), the second superannuation fund may deduct under subsection (2)(d) the expenditure referred to in subsection (2)(b) in whichever of the 2000-01 income year and the 2001-02 income year that the second superannuation fund elects by including the expenditure as a deduction in a return of income for the elected income year.”

99Entities to which apportionment rule potentially applies

“(1)A taxpayer is not subject for a tax year to the interest apportionment rule in section FG 8 or the adjustment of annual total deduction in section FG 8B unless, at a time in the taxpayer's income year, the taxpayer—

“(a)is a non-resident who is not a company:

“(b)is a company that is a non-resident in which—

“(i)no person who is resident in New Zealand has a direct ownership interest that is equal to or greater than 50%:

“(ii)a non-resident has a direct ownership interest that, when aggregated with the direct ownership interests of persons associated with the non-resident, is equal to or greater than 50%:

“(c)is a company that is resident in New Zealand—

“(i)in which a non-resident has an ownership interest that is equal to or greater than 50%:

“(ii)of which a non-resident has control by any other means:

“(d)is the trustee of a non-qualifying trust for which 50% or more in value of the settlements on the trust is settled by—

“(i)a non-resident:

“(ii)persons who are associated with the non-resident.”

(3)Section FG 2(7) is omitted.

100Section FG 3 replaced

“(1)A taxpayer who is not excluded by section FG 2 from the application of section FG 8 for a tax year is required to make an apportionment under section FG 8 of interest expenditure incurred during the corresponding income year of the taxpayer if the taxpayer—

“(a)at no time in the income year—

“(i)is a reporting bank for a New Zealand banking group:

“(ii)is part of a New Zealand banking group for the purpose of section FG 8C; and

“(b)has a New Zealand group debt percentage for the income year that—

“(i)is greater than 75%; and

“(ii)if the taxpayer is a company or a trustee, exceeds the number obtained by multiplying the worldwide group debt percentage of the taxpayer by 1.1.

“(2)A taxpayer who is not excluded by section FG 2 from the application of section FG 8B for a tax year is treated as having an annual total deduction for the tax year of an amount that is given by section FG 8B if—

“(a)at a time in the taxpayer's corresponding income year the taxpayer is the reporting bank for a New Zealand banking group; and

“(b)the New Zealand banking group has a New Zealand net equity, as defined in section FG 8G, of less than the net equity threshold for the New Zealand banking group, as defined in section FG 8H, on a measurement day for the taxpayer's corresponding income year, as defined in section FG 8E.”

101Rules for calculating New Zealand group debt percentage

(1)In section FG 4(12)(b), “New Zealand parent.” is replaced by “New Zealand parent; and” and the following is added:

“(c)are not members of a New Zealand banking group for a registered bank.”

(2)In section FG 4(14C)(b)(iii), “New Zealand parent.” is replaced by “New Zealand parent; and” and the following is added:

“(c)are not members of a New Zealand banking group for a registered bank.”

(3)In section FG 4(14D), before paragraph (a), the following is inserted:

“(aa)none of the taxpayer and the other companies is a member of a New Zealand banking group; and”.

102Apportionment of interest deductions

(1)In the heading to section FG 8, “—taxpayer not in New Zealand banking group” is added after “deductions”.

(2)In section FG 8(1), “taxpayer is not in a New Zealand banking group and the” is inserted after “if a”.

103New sections FG 8B to FG 8J inserted

After section FG 8, the following is inserted:

“FG 8BAdjustment of annual total deduction—reporting bank

“(1)For a taxpayer that is a reporting bank and under section FG 3(2) has an annual total deduction for a tax year given by this section, the taxpayer's annual total deduction for the tax year is—

“(a)if the New Zealand banking group of the reporting bank has a group funding debt for the tax year that is not zero, the amount calculated using the formula—

unadjusted annual total deduction – adjustments:

“(b)if the New Zealand banking group of the reporting bank has a group funding debt for the tax year of zero, the annual total deduction for the tax year that the taxpayer would have had in the absence of this section and section FG 3(2).

“(2)In the formula in subsection (1)(a),—

“(a)unadjusted annual total deduction is the annual total deduction for the tax year that the taxpayer would have had in the absence of this section and section FG 3(2):

“(b)adjustments is the sum of the income adjustment amounts that are given by subsection (4) for the measurement periods for the corresponding income year of the reporting bank.

“(3)The group funding debt for a tax year for the New Zealand banking group of a reporting bank means the amount calculated using the formula

“where—

“SFIis the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group of interest-bearing debt calculated under generally accepted accounting practice for a group quarter day

“FIDis the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group, on a group quarter day, of financial arrangements—

“(a)for which the consolidated financial statements of the New Zealand banking group would show, in the corresponding income year of the reporting bank, a deduction—

“(i)under 1 or more of sections DD 1(1)(b), DD 1(2) to (4), and DD 3; and

“(ii)other than as a consequence of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and

“(b)that do not contribute to item SFI

“FTEis the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group, on a group quarter day, of shares that contribute to item SFI

“NQis the number of group quarter days in the corresponding income year of the registered bank.

“(4)For a measurement day in an income year of a reporting bank, the adjustment amount for a reporting bank is the amount calculated using the formula

“where—

“NETis the net equity threshold for the New Zealand banking group for the measurement day

“NZEis the lesser of—

“(a)the net equity threshold for the New Zealand banking group for the measurement day:

“(b)the New Zealand net equity for the New Zealand banking group for the measurement day

“Iis the financial value for the New Zealand banking group, on the last day of the income year, of expenditure that—

“(a)is incurred by a member of the New Zealand banking group in the income year; and

“(b)is an interest expense under generally accepted accounting practice, incurred other than in relation to a share that contributes to item SFI, or is a deduction referred to in paragraph (a) of the definition of item FID in subclause (3)

“GFDis the group funding debt for the tax year for the New Zealand banking group

“PDis the number of days in the measurement period that corresponds to the measurement day

“YDis the number of days in the income year.

“(5)In this section, group quarter day for a registered bank and a tax year means a day—

“(a)that is the last day of a quarter in the corresponding income year of the registered bank; and

“(b)on which the registered bank is a reporting bank.

“FG 8CNew Zealand banking group of registered bank

“(1)The New Zealand banking group of a registered bank for a measurement period consists of every person or fixed establishment that on the measurement day for the measurement period is—

“(a)a member under subsection (2) or a potential member under subsection (3) or (4); and

“(b)not excluded by an election under subsection (8).

“(2)If the registered bank—

“(a)is resident in New Zealand, the registered bank is a member:

“(b)is not resident in New Zealand, a fixed establishment in New Zealand of the registered bank is treated as being a person who is—

“(i)separate from the registered bank; and

“(ii)a member.

“(3)A person who is a New Zealand resident is a potential member, if—

“(a)the person satisfies subsection (5) and—

“(i)the registered bank is resident in New Zealand; and

“(ii)there is no non-resident who is an ultimate parent of the registered bank under subsection (9):

“(b)the person satisfies subsection (6) and—

“(i)the registered bank is a non-resident; and

“(ii)there is no non-resident who is an ultimate parent of the registered bank under subsection (9):

“(c)the person satisfies subsection (7) and there is a non-resident who is an ultimate parent of the registered bank under subsection (9).

“(4)A fixed establishment in New Zealand of a non-resident is treated as being a person who is separate from the non-resident and a potential member if—

“(a)the fixed establishment satisfies subsection (6) and—

“(i)the registered bank is a non-resident; and

“(ii)there is no non-resident who is an ultimate parent of the registered bank under subsection (9):

“(b)the fixed establishment satisfies subsection (7) and there is a non-resident who is an ultimate parent of the registered bank under subsection (9).

“(ii)would be required to include the person and the registered bank but for relevant materiality thresholds:

“(b)the person is in the same group of companies as the registered bank under section IG 1(2).

“(6)A person or fixed establishment satisfies this subsection if—

“(a)under generally accepted accounting practice, the person or fixed establishment would be required to be included in consolidated group accounts with the registered bank if—

“(i)the registered bank were resident in New Zealand; and

“(ii)the relevant materiality thresholds were satisfied:

“(b)the person is in the same group of companies as the registered bank under section IG 1(2).

“(7)A person or fixed establishment satisfies this subsection if—

“(a)under generally accepted accounting practice, the person or fixed establishment would be required to be included in consolidated group accounts with the ultimate parent of the registered bank if—

“(i)the ultimate parent were resident in New Zealand; and

“(ii)the relevant materiality thresholds were satisfied:

“(b)the person is in the same group of companies as the ultimate parent under section IG 1(2).

“(8)A reporting bank may elect under this subsection to exclude from the New Zealand banking group of the reporting hank—

“(a)a person or fixed establishment whose main activity is the providing of life insurance:

“(b)a person who—

“(i)is resident in New Zealand; and

“(ii)has a voting interest of 100% in a person who is excluded by an election under paragraph (a); and

“(iii)does not have a main activity that is banking, financing or leasing; and

“(iv)does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing:

“(c)a fixed establishment of a non-resident, if—

“(i)the non-resident has a voting interest of 100% in a person who is excluded by an election under paragraph (a); and

“(ii)the fixed establishment has a main activity of financing the person who is excluded by the election under paragraph (a); and

“(iii)the fixed establishment does not have a main activity that is banking, financing or leasing, other than the activity referred to in subparagraph (ii); and

“(iv)the fixed establishment does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing:

“(d)a person who—

“(i)is resident in New Zealand; and

“(ii)under generally accepted accounting practice is required for the making of financial reports to be included in consolidated group accounts with a person or fixed establishment who is excluded by an election under paragraph (a) or (b); and

“(iii)does not have a main activity that is banking, financing or leasing; and

“(iv)does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing.

“(9)For the purposes of this section, the ultimate parent of a registered bank is a company—

“(a)that has an ownership interest in the registered bank, calculated under section FG 2, of 50% or more; and

“(b)in which no ownership interest, as calculated under section FG 2, is held by a company that holds an ownership interest in the registered bank, calculated under section FG 2, of 50% or more.

“(10)For the purposes of this section, the ultimate parent of a fixed establishment in New Zealand of a registered bank is the registered bank.

“FG 8DReporting bank for New Zealand banking group

“(1)For a New Zealand banking group that on a day includes a single registered bank, or includes no registered bank but includes a fixed establishment of a single registered bank, the reporting bank for the day is the registered bank.

“(2)For a New Zealand banking group that on a day includes more than 1 registered bank, the reporting bank for the day is—

“(a)the registered bank that first gives notice to the Commissioner of an election to be the reporting bank, if the Commissioner receives such a notice by the day that is 6 months after the end of the tax year in which the day occurs:

“(b)the registered bank chosen by the Commissioner, if paragraph (a) does not apply.

“(3)For a New Zealand banking group that on a day includes no registered bank but includes fixed establishments of more than 1 registered bank, the reporting bank for the day is—

“(a)the registered bank that first gives notice to the Commissioner of an election to be the reporting bank, if the Commissioner receives such a notice by the day that is 6 months after the end of the tax year in which the day occurs:

“(b)the registered bank chosen by the Commissioner, if paragraph (a) does not apply.

“FG 8EMeasurement periods and measurement days

“(1)For the New Zealand banking group and income year of a reporting bank, the measurement periods are—

“(a)the quarters in the income year, if the reporting bank does not make an election under paragraph (b) or (c):

“(b)each calendar month of the income year, if the reporting bank elects that the New Zealand banking group have such measurement periods:

“(c)each day of the income year, if the reporting bank elects that the New Zealand banking group have such measurement periods.

“(2)For the New Zealand banking group and income year of a reporting bank, the measurement days are each last day of each measurement period if the measurement periods are given by subsection (1)(a) or (b).

“(3)If there is a change in the identity of the reporting bank for a tax year for a New Zealand banking group, the measurement period corresponding to the first measurement day for the new reporting bank begins on the day after the last measurement day for the former reporting bank.

“FG 8FFinancial value and regulatory value

“(1)In sections FG 8B to FG 8J, the financial value of an item for a New Zealand banking group at a time is the amount that would be recorded for the item in financial statements for the New Zealand banking group that—

“(a)related to the time; and

“(b)were prepared for external reporting purposes; and

“(c)were produced consistently with generally accepted accounting practice at the time by—

“(i)consolidating the financial statements for the members of the New Zealand banking group that are in the same group of companies; and

“(ii)if more than 1 consolidation is required under subparagraph (i), combining the consolidated financial statements so as to eliminate inter-group transactions.

“(2)In sections FG 8B to FG 8J, the regulatory value of an item for a New Zealand banking group at a time is the total risk-weighted value for the item that would be obtained for the New Zealand banking group if the New Zealand banking group were a banking group for the purposes of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand acting in the prudential supervision of registered banks under the Reserve Bank of New Zealand Act 1989.

“FG 8GNew Zealand net equity of New Zealand banking group

“(1)The New Zealand net equity of the New Zealand banking group of a registered bank for a measurement day is given by the following formula:

“EQVis the sum of the following amounts for the New Zealand banking group:

“(a)the financial value for the measurement day of—

“(i)the shareholders' equity for the New Zealand banking group; and

“(ii)the branch equity relating to fixed establishments of the New Zealand banking group:

“(b)the financial value for the measurement day of shares, each of which—

“(i)is issued by a member of the taxpayer's New Zealand banking group; and

“(ii)does not contribute to the amount referred to in paragraph (a):

“(c)the financial value for the measurement day of financial arrangements, each of which is a loan, or the provision of funds by a non-resident to its fixed establishment that—

“(i)is not taken into account in the calculation of the group funding debt of the New Zealand banking group; and

“(ii)is made by a non-resident who is not a member of the New Zealand banking group and is associated with a member of the New Zealand banking group under section OD 7 or OD 8(3); and

“(iii)is made to a member of the New Zealand banking group; and

“(iv)does not contribute to the amount referred to in paragraph (a); and

“(v)does not give rise to interest expenditure other than as a result of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and

“(vi)does not relate to a supply of goods or services

“FRSis the financial value for the measurement day of fixed rate shares, each of which is—

“(a)issued by a member of the New Zealand banking group; and

“(b)owned by a person who is resident in New Zealand; and

“(c)included in the value of item EQV; and

“(d)issued by the member—

“(i)on or after 1 January 2005:

“(ii)before 1 January 2005, if the measurement period begins on or after 1 January 2010

“EIDis the financial value for the measurement day of financial arrangements, each of which—

“(a)is taken into account under paragraph (a) or (b) of the definition of item EQV in calculating the value of that item; and

“(b)gives rise to a deduction for the tax year under 1 or more of sections DB 6 to DB 8 for a member of the New Zealand banking group

“UPBis the financial value for the measurement day of unvested policyholder benefit liabilities and policy-holder retained profits that contribute to the value of item EQV

“INTGis the financial value for the measurement day of intangible assets, other than—

“(a)goodwill relating to a business that is not banking, financing, leasing, or life insurance and that—

“(i)is acquired from a person who, at the time of acquisition, is not associated under section OD 7 or OD 8(3) with a member of the New Zealand banking group:

“(ii)relates to an entity that is acquired from a person who is not associated under section OD 7 or OD 8(3) with a member of the New Zealand banking group:

“(b)a film or film right:

“(c)property that is depreciable property or is expected to become depreciable property

“CGAis the sum for the measurement day of capital gain amounts, each of which arises for the 2004-05 or a later tax year from a transfer of an intangible asset between a member of the New Zealand banking group and a person who—

“(a)is not a member of the New Zealand banking group; and

“(b)is associated with a member of the New Zealand banking group under section OD 7 or OD 8(3)

“REVis the financial value for the measurement day of revaluation reserves that contribute to the value of item EQV

“TXBis the financial value for the measurement day of net future tax benefits that are taken into account in determining the value of item EQV and arise from—

“(a)net losses for the tax year:

“(b)losses carried forward from an earlier tax year:

“(c)timing or temporary differences to the extent that the items giving rise to the timing or temporary differences would contribute to a net loss for the tax year if the items were deductible in the tax year

“CEFAis the financial value for the measurement day of the credit enhancements provided by members of the New Zealand banking group, each of which is, for the purpose of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand,—

“(a)a credit enhancement that is provided to an associated funds management and securitisation scheme of a non-member:

“(b)a credit enhancement that is provided to an affiliated insurance group that is a non-member and has not been expensed

“NAFAis the financial value for the measurement day of advances by members of the New Zealand banking group, each of which is, for the purpose of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand, an advance of a capital nature to a connected person who is not a member of the New Zealand banking group

“EOIis the amount that would, if the New Zealand banking group included the potential members of the New Zealand banking group and before any set-off allowed under generally accepted accounting practice, be the financial value for the measurement day of shares in non-residents that—

“(a)are held by—

“(i)a member or potential member of the New Zealand banking group:

“(ii)a company resident in New Zealand in which a member or potential member of the New Zealand banking group holds a direct voting interest of 10% or more and that, in the income year, pays to the member or potential member a dividend to which a conduit tax relief credit is attached; and

“(b)are not interests in foreign investment funds for which the FIF income or loss is calculated using the comparative value method or the deemed rate of return method; and

“(c)are not shares in a grey list company that—

“(i)are listed on the official list of a recognised exchange; and

“(ii)are revenue account property; and

“(iii)would not be a sufficient interest in the offshore company if the class of the shares were the only class of share issued by the offshore company

“NOIAis the notional offshore investment amount for the New Zealand banking group for the income year of the reporting bank, as defined in subsection (4)

“AEQis the financial value for the measurement day of interests, each of which is taken into account in calculating item EQV and is held by a person who—

“(a)is not a member of the New Zealand banking group; and

“(b)is not a member of the New Zealand banking group because of an election under section FG 8C(8); and

“(c)is resident in New Zealand or holds the interest through a fixed establishment in New Zealand

“AEQIis the financial value for the measurement day of—

“(a)shares in persons who are not members of the New Zealand banking group because of an election under section FG 8C(8):

“(b)loans, other than on arm's-length terms, to persons who are not members of the New Zealand banking group because of an election under section FG 8C(8).

“(2)Subsection (3) applies if a component of an item, other than the item NOIA, that is subtracted from the item EQV under subsection (1) is a component of 1 or more other such items.

“(3)The value of the component is included in a single item for which the value of the component is not less than the value of the component for each of the other items.

“(4)The notional offshore investment amount for a New Zealand banking group for an income year of the reporting bank for the New Zealand banking group is the greater of zero and the amount given by the following formula:

“where—

“FTCis the total for the tax year of foreign tax credits each of which—

“(a)is claimed as a credit against the income tax liability for the tax year of—

“(i)a member of the New Zealand banking group:

“(ii)a person who is excluded from the New Zealand banking group by an election under section FG 8C(7); and

“(b)does not arise from attributed CFC income or from FIF income; and

“(c)does not arise from income derived before 1 July 2005

“DMTis the amount—

“(a)set by the Governor-General by Order in Council as the threshold amount for the application of this subsection; or

“(b)equal to $5,000,000, if no threshold amount is set under paragraph (a), and paragraph (c) does not apply; or

“(c)equal to $416,667 multiplied by the number of months beginning on or after 1 July 2005 in the corresponding income year for the reporting bank, if the corresponding income year includes that date and no threshold amount is set under paragraph (a)

“CRTis the rate of tax for companies referred to in Schedule 1, Part A, item 5 for the tax year

“IRRis the amount—

“(a)set by the Governor-General by Order in Council as the interest rate of return for the purposes of this subsection; or

“(b)of 7% per year, if no interest rate of return is set under paragraph (a)

“NMis the number of months beginning on or after 1 July 2005 in the income year of the reporting bank for the New Zealand banking group.

“(5)The Governor-General may, from time to time by Order in Council,—

“(a)specify a type of instrument that is included in item EQV for the purposes of subsection (1):

“(b)specify a type of instrument that is not included in item EQV for the purposes of subsection (1):

“(c)set, replace, or repeal a figure for a threshold amount for a value of an instrument, or aggregate value of a type of instrument, held by a person or group of persons for the purposes of a specification under paragraph (a) or (b):

“(d)amend or delete a specification under paragraph (a) to (c):

“(e)set, replace, or repeal a figure for the threshold amount for the purposes of paragraph (a) of the definition of item DMT in subsection (4):

“(f)set, replace, or repeal a figure for the interest rate of return for the purposes of paragraph (a) of the definition of item IRR in subsection (4).

“(6)An Order in Council under subsection (5) may—

“(a)come into effect on or after 1 July 2005:

“(b)apply for measurement periods and quarters that commence on or after 1 July 2005.

“FG 8HNet equity threshold

“(1)The net equity threshold for a measurement day for the New Zealand banking group of a registered bank is given by the following formula:

0.04 x (RWE – DEQ)

“where—

“RWEis the sum of the following values for the measurement day:

“(a)for an asset that is included in a balance sheet, the regulatory value of the asset:

“(b)for an exposure that is not included in a balance sheet, the regulatory value of the exposure:

“(c)for goodwill that is not taken into account in calculating item INTG in determining the New Zealand net equity of the New Zealand banking group, the financial value of the goodwill

“DEQis the total of the regulatory values for the measurement day of items that are—

“(a)excluded from the calculation of item NOIA; and

“(b)deducted from item EQV in determining the New Zealand net equity of the New Zealand banking group.

“(2)For the purposes of subsection (1), the assets of a fixed establishment include the assets that are treated as being the assets of the fixed establishment under generally accepted accounting practice.

“FG 8IValuation of debt and risk-weighted exposures

For the purposes of sections FG 8B to FG 8H, the value on a day of a financial arrangement or risk-weighted exposure that is denominated in a foreign currency must be determined—

“(a)in New Zealand currency; and

“(b)using the close of trading spot exchange rate for the foreign currency on the day.

A change in a quantity that, but for this subsection, would produce a temporary change in the New Zealand net equity or net equity threshold of the New Zealand banking group of a registered bank does not affect the value of the New Zealand net equity or net equity threshold if the change is produced by an arrangement that has an effect of defeating the intent and application of sections FG 8B to FG 8I.”

104Circumstances in which group excess interest allocation required

Section FH 1(1) is replaced by the following:

“(1)Subject to subsection (2), the group excess interest allocation rules in sections FH 5 to FH 8 apply for a tax year to a company that—

“(a)for the imputation year that corresponds with the tax year—

“(i)is a dividend withholding payment account company or a conduit tax relief company; and

“(ii)is not a member of a New Zealand banking group for a registered bank; and

“(b)in the corresponding income year—

“(i)derives foreign attributed income:

“(ii)is paid a dividend from which the company must deduct an amount of dividend withholding payment or would have to deduct such an amount but for section NH 7.”

105Imputation-arrangement to obtain tax advantage

In section GC 22(4)(b), “both a tax credit advantage and” is omitted.

106Resident withholding tax deductions to be credited against income tax assessed

(1)In the heading to section LD 3, “deductions” is replaced by “payments”.

(2)In section LD 3(2), in the words before paragraph (a),—

(a)“deducted from” is replaced by “paid in relation to”:

(b)“deduction” is replaced by “payment”.

(3)In section LD 3(2), in the words after paragraph (d), “deducted” is replaced by “payments”.

107Section MB 6 replaced

(1)Section MB 6 is replaced by the following:

“MB 6Voluntary payments

A taxpayer may at any time make voluntary payments to the Commissioner as provisional tax of such amounts as the taxpayer thinks fit, being—

“(a)tax in respect of the taxpayer's income tax liability for a tax year:

“(b)tax in excess of the provisional tax payable by the taxpayer for a tax year:

“(c)tax in excess of the taxpayer's income tax liability for a tax year.”

“(fb)in the case of a debit referred to in subsection (1)(fb), on the date on which the leaving company ceases to be a member of the wholly-owned group of companies:”.

110New sections ME 9B and ME 9C inserted

(1)After section ME 9, the following is inserted:

“ME 9BImputation credit account company leaving wholly-owned group

“(1)This section applies to an imputation credit account company (called the leaving company) if, at a time in the income year of the leaving company,—

“(a)there is a change in the ultimate owners of the leaving company; and

“(b)as a result of the change, the leaving company ceases to be a member of a wholly-owned group of companies (called the former group); and

“(c)the total amount of the available net losses from the previous tax year for the members of the former group exceeds $1,000,000.

“(2)If the leaving company at the time has a debit balance in its imputation credit account, the leaving company—

“(a)may elect that an amount that is not more than the debit balance be—

“(i)a debit in the imputation credit account of another imputation credit account company that is a member of the former group and for which there is no change in ultimate owners at the time; and

“(ii)a credit in the imputation credit account of the leaving company:

“(b)may elect to pay an amount of tax by way of additional income tax that is equal to—

“(i)the amount of the debit balance, if the leaving company makes no election under paragraph (a):

“(ii)the amount by which the debit balance exceeds the amount that is subject to the election under paragraph (a).

“(3)If the leaving company at the time is entitled to an amount in a pooling account or would be entitled, in the absence of section MD 2, to a refund under section MD 1 of an amount of excess tax, subsection (4) applies to the following amount (called the excess entitlement):

“(a)zero, if at the time the credit balance in the imputation credit account of the leaving company equals or exceeds the total of the following amounts:

“(i)the amount that would be the entitlement under section MD 1:

“(ii)the amount in a tax pooling account that has been provided by or for the benefit of the leaving company and would exceed the liability at the time of the leaving company to pay income tax or provisional tax:

“(b)the total of the amounts referred to in paragraph (a)(i) and (ii), if at the time there is no credit balance in the imputation credit account of the leaving company:

“(c)the amount by which the credit balance in the imputation credit account of the leaving company at the time is exceeded by the total of the amounts referred to in paragraph (a)(i) and (ii), if neither of paragraphs (a) and (b) applies.

“(4)If the leaving company at the time has an excess entitlement, the leaving company—

“(a)may elect that an amount that is not more than the excess tax payment for the company be—

“(i)treated as having been paid, as income tax or provisional tax, on behalf of another imputation credit account company that is a member of the former group and for which there is no change in ultimate owners at the time; and

“(ii)not treated as having been paid as income tax or provisional tax by the leaving company:

“(b)may elect to pay an amount of tax by way of additional income tax equal to—

“(i)the amount of the excess entitlement, if the leaving company makes no election under paragraph (a); or

“(ii)the amount by which the excess tax payment exceeds the amount that is subject to the election under paragraph (a).

“(5)A leaving company or a former group may satisfy a liability to pay additional income tax under subsection (2) or (4) by treating an excess tax payment of the leaving company or the former group as a payment towards the satisfaction of the liability.

“(6)If the leaving company elects to pay an amount of additional income tax under subsection (2)(b) or (4)(b) that exceeds the amount of any payment under subsection (5), the additional income tax must be paid to the Commissioner by the 20th day of the month following the month in which the leaving company leaves the former group.

“(7)The former group is jointly liable with the leaving company for additional income tax payable under subsection (6).

“(8)A payment of additional income tax under subsection (2) or (4) does not satisfy any other liability of the leaving company or the former group.

“(9)An election under subsection (2) or (4) must be—

“(a)in a form the Commissioner may require; and

“(b)made by the leaving company; and

“(c)accompanied by notice of agreement from the company who receives the debit under subsection (2) or is treated under subsection (4) as having the benefit of the excess tax payment; and

“(d)be made before the company leaves the group or within a further period that the Commissioner may allow if satisfied that the company had insufficient information to make an appropriate election at the time the company left the group.

“(10)In this section,—

“(a)an ultimate owner of a company means a person—

“(i)who has an ownership interest in the company, calculated under section FG 2; and

“(ii)in whom no ownership interest, as calculated under section FG 2, is held by a person who holds an ownership interest in the company, calculated under section FG 2, of 50% or more:

“(b)excess tax payment, for a company at a time, means the amount at the time by which payments made by or on behalf of the company to the Commissioner for income tax or provisional tax exceed the liability at the time of the company to pay income tax and provisional tax.

“ME 9CImputation credit account company joining wholly-owned group

“(1)This section applies to an imputation credit account company (called the joining company) if, at a time in the income year of the joining company—

“(a)the joining company becomes a member of a wholly-owned group of companies (called the new group); and

“(b)the joining company was formerly a member of a wholly-owned group (called the former group) having ultimate owners that differed from the ultimate owners of the new group; and

“(c)the total amount of the available net losses from the previous tax year for the members of the former group exceeds $1,000,000.

“(2)Subsection (3) applies to the joining company if—

“(a)the joining company at the time has a debit balance in its imputation credit account; and

“(b)the debit balance includes debits (called the former group debits)—

“(i)that arose in the imputation credit account when the joining company was a member of the former group; and

“(ii)upon which additional income tax under section ME 9B(2) was not paid by the joining company or former group.

“(3)The joining company must pay an amount of tax by way of additional income tax that is equal to the amount of the former group debits.

“(4)If the joining company at the time is entitled to an amount in a pooling account or would be entitled, in the absence of section MD 2, to a refund under section MD 1 of an amount of excess tax relating to a time when the joining company was in the former group, subsection (5) applies to the following amount (called the excess entitlement):

“(a)zero, if at the time the credit balance in the imputation credit account of the joining company equals or exceeds the total of the following amounts:

“(i)the amount that would be the entitlement under section MD 1:

“(ii)the amount in a tax pooling account that has been provided by or for the benefit of the joining company to pay income tax and provisional tax and would exceed the liability at the time of the joining company:

“(b)the total of the amounts referred to in paragraph (a)(i) and (ii), if at the time there is no credit balance in the imputation credit account of the joining company:

“(c)the amount by which the credit balance in the imputation credit account of the joining company at the time is exceeded by the total of the amounts referred to in paragraph (a)(i) and (ii), if neither of paragraphs (a) and (b) applies.

“(5)If the joining company at the time has an excess entitlement, the joining company must pay an amount of tax by way of additional income tax equal to the amount of the excess entitlement.

“(6)A joining company or a new group may satisfy a liability to pay additional income tax under subsection (3) or (5) by treating an excess tax payment of the joining company or the new group as a payment towards the satisfaction of the liability.

“(7)If the joining company must pay an amount of additional income tax under subsection (3) or (5) that exceeds the amount of any payment under subsection (6), the additional income tax must be paid to the Commissioner by the 20th day of the month following the month in which the joining company joins the new group.

“(8)The new group is jointly liable with the joining company for additional income tax payable under subsection (3) or (5).

“(9)A payment of additional income tax under subsection (3) or (5) does not satisfy any other liability of the joining company or the new group.

“(10)In this section,—

“(a)an ultimate owner of a company means a person—

“(i)who has an ownership interest in the company, calculated under section FG 2; and

“(ii)in whom no ownership interest, as calculated under section FG 2, is held by a person who holds an ownership interest in the company, calculated under section FG 2, of 50% or more:

“(b)excess tax payment, for a company at a time, means the amount at the time by which payments made by or on behalf of the company to the Commissioner for income tax or provisional tax exceed the liability at the time of the company to pay income tax and provisional tax.”

(2)Subsection (1) applies for a company that leaves a wholly-owned group on or after 16 November 2004.

“(3B)Sections ME 9B and ME 9C and sections 97, 101, 139B, 140B, 140D, and 180 of the Tax Administration Act 1994 apply, with any necessary modifications, to a consolidated imputation group and its imputation credit account as if—

“(a)it were a single company; and

“(b)each reference to a provision of this Act were a reference to the equivalent provision applicable to consolidated imputation groups; and

“(c)each reference to liability of a company for additional income tax, late payment penalty, or imputation penalty tax were (subject to the application of section HB 1(2) to (5)) a reference to joint and several liability for that tax of each company which is a member of the group at the time the additional income tax, late payment penalty, or imputation penalty tax becomes payable.”

“(1A)A person is liable to pay to the Commissioner, in relation to a payment that is or includes resident withholding income, a tax (called resident withholding tax) of an amount given by subsection (1) or (1B) if—

“(a)the person makes the payment and is required to make a deduction of resident withholding tax from the payment:

“(b)the person is an RWT proxy for the payer of the resident withholding income, the recipient of the resident withholding income, and the resident withholding income.

“(1AB)A person who makes a payment that is or includes resident withholding income must deduct resident withholding tax from the payment if the person is not excluded by the rest of this section from liability to make the deduction.”

(4)In section NF 2(1), the words before paragraph (a) are replaced by “If a person makes a payment that is or includes resident withholding income and is required to deduct resident withholding tax from the payment, the person must make a deduction—”.

(5)After section NF 2(1), the following is inserted:

“(1B)A person who is an RWT proxy for a payer of resident withholding income and a payment of resident withholding income in the form of a dividend must pay to the Commissioner the amount of resident withholding tax given by the following formula:

113New section NF 2AA inserted

“NF 2AAElection to be RWT proxy

“(1)A person is an RWT proxy for a payer of resident withholding income and a payment that is or includes the resident withholding income if—

“(a)the person gives to the Commissioner a notice of election under subsection (2); and

“(b)the payer is a unit trust who is a non-resident; and

“(c)the recipient is a natural person or a trustee of a qualifying trust; and

“(d)the recipient has requested the person to act as an RWT proxy in relation to the payer and the resident withholding income; and

“(e)the person has agreed to act as an RWT proxy in relation to the recipient; and

“(f)the resident withholding income is a dividend; and

“(g)the payment is made while the election in the notice is effective.

“(2)A notice of election must be in writing and contain—

“(a)an election by the person to be an RWT proxy for dividends distributed by the payer; and

“(b)the name and postal address of the payer; and

“(c)the date from which the election is effective.

“(3)An election by a person to be an RWT proxy is effective from the date nominated in the notice of election until the later of the following:

“(a)the date nominated in a written notice of cancellation of the election that the Commissioner receives from the person:

“(b)the date on which the Commissioner receives from the person a written notice of cancellation of the election.”

114Election to apply higher rate of deduction

(1)Section NF 2A(1) is replaced by the following:

“(1)A person entitled to receive a payment to which section NF 2(1) or (1B) relates may elect, in the manner required by the payer or RWT proxy, that the payment be subject to resident withholding tax at a rate specified in schedule 14, clause 1(a), (b), or (c).”

(2)In section NF 2A(3),—

(a)“each deduction” is replaced by “each deduction or payment under section NF 2(1B)”:

(b)“the deduction” is replaced by “the deduction or payment”.

115Payment of deductions of resident withholding tax to Commissioner

After section NF 4(8), the following is added:

“(9)For the purposes of this section, an RWT proxy who is required to pay resident withholding tax in relation to a payment of resident withholding income is treated as having deducted the resident withholding tax from the payment at the time of the payment.”

117Definitions

(3)After the definition of expenditure portion, the following is inserted:

“exploration and development activities is defined in section CB 16(2) for the purposes of that section”.

(4)The definition of finance lease is replaced by the following:

“finance lease means a lease of a lease asset entered by a taxpayer on or after 20 May 1999 that,—

“(a)when the taxpayer enters the lease, involves or is part of an arrangement that involves—

“(i)the transfer of the ownership of the lease asset to the lessee or an associate of the lessee during or at the end of the lease term:

“(ii)the lessee or an associate of the lessee having the option of acquiring the lease asset for an amount that is likely to be substantially lower than the lease asset's market value on the date of acquisition:

“(iii)a right of an associate of the lessee to acquire the lease asset, or a right of the lessor to require an associate of the lessee to acquire the lease asset, during the lease term under an arrangement that does not entitle the associate to receive all of the lease payments that may fall due after the acquisition:

“(b)when the taxpayer enters the lease or from a later time, involves a lease term that is more than 75% of the lease asset's estimated useful life”.

(5)After the definition of financial statements, the following is inserted:

“financial value for the New Zealand banking group of a registered bank is defined in section FG 8F for the purposes of Part FG”.

(6)Paragraph (b) of the definition of fixed rate share is replaced by the following:

“(b)is defined in section LF 2(3) for the purposes of that section and section FG 8G”.

(7)After the definition of gross tax deductions, the following is inserted:

“group funding debt is defined in section FG 8B for the purposes of Part FG”.

(8)After the definition of group of persons, the following is inserted:

“group quarter day is defined in section FG 8B(6) for the purposes of that section”.

(9)The definition of measurement day is replaced by the following:

“measurement day,—

“(a)in relation to a calendar year, means each of 31 March, 30 June, 30 September, and 31 December, except for the purposes of Part FG:

“(b)for an income year of a reporting bank, means 1 of the measurement days for the income year defined in section FG 8E for the purposes of Part FG

“measurement period, for an income year of a reporting bank, means 1 of the measurement periods for the income year defined in section FG 8E for the purposes of Part FG”.

(10)Before the definition of net gain, the following is inserted:

“net equity threshold for the New Zealand banking group of a registered bank is defined in section FG 8H for the purposes of Part FG”.

(11)In the definition of net loss, “written off by the Commissioner under section 177C(4)” is replaced by “extinguished by the Commissioner under section 177C(5)”.

(12)After the definition of New Zealand, the following is inserted:

“New Zealand banking group, for a registered bank, is defined in section FG 8C for the purposes of Part FG”.

(13)After the definition of New Zealand group debt percentage, the following is inserted:

“New Zealand net equity, for a New Zealand banking group, is defined in section FG 8G(1) for the purposes of Part FG”.

(14)After the definition of notional income tax liability, the following is inserted:

“notional offshore investment amount, for a reporting bank, is defined in section FG 8G(4) for the purposes of Part FG”.

(15)After the definition of offshore development, the following is inserted:

“offshore permit area is defined in section CB 16(2) for the purposes of that section”.

(16)After the definition of partnership net income, the following is inserted:

“patent application date, for an application for a patent, means the date on which the application with a complete specification is lodged with the Intellectual Property Office of New Zealand or a similar office in a country or territory other than New Zealand”.

(17)After the definition of registered, the following is inserted:

“registered bank means a registered bank as defined in section 2 of the Reserve Bank of New Zealand Act 1989”.

(18)After the definition of registered security, the following is inserted:

“regulatory value for the New Zealand banking group of a registered bank is defined in section FG 8F for the purposes of Part FG”.

(19)After the definition of replacement price option, the following is inserted:

“reporting bank, for a New Zealand banking group, means the reporting bank that is given for the New Zealand banking group by section FG 8D”.

(20)After the definition of royalty, the following is inserted:

“RWT proxy is defined in section NF 2AA (Election to be RWT proxy)”.

(21)In the definition of sufficient interest, “in Part LF” is replaced by “in Part FG, Part LF,”.

(22)In the definition of taxable bonus issue, paragraph (b) is replaced by the following:

“(b)any bonus issue that—

“(i)is issued fully paid from reserves of the company and, if a dividend, would not be exempt income under section CB 10(2) to (5); and

“(ii)the company elects in accordance with section CF 8(a) (or with section 3(3)(a)(i) of the Income Tax Act 1976) to be a bonus issue that will be treated as a dividend for the purposes of this Act”.

(23)After the definition of type, the following is inserted:

“ultimate owner is defined in—

“(a)section ME 9B for the purposes of that section:

“(b)section ME 9C for the purposes of that section”.

(24)Before the definition of unadjusted income tax liability, the following is inserted:

“ultimate parent is defined in section FG 8C for the purposes of that section”.

(25)Subsection (4) applies for arrangements entered on or after 29 March 2004.

(26)Subsection (22) applies for an issue of shares made on or after 16 November 2004.

118Determination of residence of company

(1)In section OE 2(1), in the words before paragraph (a), “that is not referred to in subsection (1B)” is inserted after “A company”.

(2)After section OE 2(1), the following is inserted:

“(1B)For the purposes of this Act, a company acting as trustee of the Cook Islands National Superannuation Fund, as established by the Cook Islands National Superannuation Trust Deed under the Cook Islands National Superannuation Act 2000 (Cook Islands), is not resident in New Zealand.”

122New sections 20B to 20G inserted

“20BNo requirement to disclose tax advice document

“(1)A person (called in this section and sections 20C to 20G an information holder) who is required under 1 or more of sections 16 to 19 to disclose information in relation to the information holder or another person is not required to disclose a book or document that is a tax advice document for the person to whom the information relates.

“(2)A book or document is eligible to be a tax advice document for a person if the book or document—

“(a)is confidential; and

“(b)is created by—

“(i)the person for the main purpose of instructing a tax advisor to act for the person by giving advice to the person, if the advice is to be about the operation and effect of tax laws:

“(ii)a tax advisor or, where the tax advisor is in public practice, an employee of the tax advisor's firm, for the main purpose of recording research and analysis, if the research and analysis is performed for the main purpose of enabling the tax advisor to give advice to the person about the operation and effect of tax laws:

“(iii)a tax advisor or, where the tax advisor is in public practice, an employee of the tax advisor's firm, for the main purpose of the giving of advice by the tax advisor to the person, or the recording of advice given by the tax advisor to the person, if the advice is about the operation and effect of tax laws; and

“(c)is created for purposes that do not include a purpose of committing, or promoting or assisting the committing of, an illegal or wrongful act.

“(3)A book or document is a tax advice document for a person if—

“(a)the book or document is eligible under subsection (2) to be a tax advice document for the person; and

“(b)the person makes a claim, under section 20D, that the book or document is a tax advice document; and

“(c)the person satisfies the requirements of sections 20E and 20F for the book or document.

“(4)A tax advisor is a natural person who is subject to the code of conduct and disciplinary process, referred to in subsection (5)(a)(ii) and (iii), of an approved advisor group.

“(5)An approved advisor group is a group that—

“(a)includes natural persons who—

“(i)have a significant function of giving advice on the operation and effect of tax laws; and

“(ii)are subject to a professional code of conduct in giving the advice; and

“(iii)are subject to a disciplinary process that enforces compliance with the code of conduct; and

“(b)is approved by the Commissioner for the purposes of this definition.

“20CTreatment of book or document

“(1)This section applies to a book or document that is—

“(a)included in a request for information in relation to a person; and

“(b)possibly eligible to be a tax advice document for the person.

“(2)The book or document must be treated as being a tax advice document for the person—

“(a)from the time of the request for information:

“(b)until the earlier of—

“(i)the time by which the person is required by section 20D to claim that the book or document is a tax advice document for the person:

“(ii)the time at which the person informs the Commissioner that the person does not claim that the book or document is a tax advice document for the person.

“(3)If the person makes a claim under section 20D that the book or document is a tax advice document for the person, the book or document must be treated as being a tax advice document for the person from the time of the claim until—

“(a)the District Court rules that the book or document is not a tax advice document for the person:

“(b)the person agrees in writing that the book or document is not eligible to be a tax advice document for the person:

“(c)the person withdraws in writing the claim that the book or document is a tax advice document for the person:

“(d)an approved advisor group informs the Commissioner that a tax advisor is not or was not a member of the approved advisor group at a time—

“(i)at which the tax advisor is claimed by the person or the tax advisor to be a member of the approved advisor group; and

“(ii)at which the tax advisor would be required to be a member of an approved advisor group for the document to be a tax advice document.

“(4)If a book or document must be treated under this section as being a tax advice document for a person, a copy of the book or document must be held in a secure place for the periods referred to in subsections (2) and (3) by a tax advisor.

“20DClaim that book or document is tax advice document

“(1)A claim by a person that a book or document is a tax advice document for the person must be made by the person or by a tax advisor who is authorised to act on behalf of the person for the purposes of sections 20C to 20G.

“(2)A claim that a book or document created by a person is a tax advice document for the person must contain the following information:

“(a)a brief description of the form and contents of the book or document; and

“(b)the name of the tax advisor for whom the book or document was intended; and

“(c)the date on which the book or document was created.

“(3)A claim that a book or document created by a tax advisor, or by an employee of a tax advisor's firm, is a tax advice document for a person must contain the following information:

“(a)a brief description of the form and contents of the book or document; and

“(b)the name of the tax advisor giving the tax, advice in relation to which the book or document was created; and

“(c)the approved advisor group to which the tax advisor belonged when the book or document was created; and

“(d)the statute or other enactment and the type of revenue that was the subject of the tax advisor's advice in relation to which the book or document was created; and

“(e)the date on which the book or document was created.

“(4)A claim that a book or document is a tax advice document for a person must be made—

“(a)if the requirement to disclose information is under 1 or both of sections 16 and 16B—

“(i)on the day on which the Commissioner or an officer of the Department exercises the right of inspection or removal that leads to the claim:

“(ii)by a later date to which the Commissioner agrees:

“(b)if the requirement to disclose information is under section 17, by the date that is the later of the following:

“(i)the date that is given by the Commissioner in the request for disclosure of the information:

“(ii)the date that is 28 days after the date of the request by the Commissioner for disclosure of the information:

“(c)if the requirement to disclose information is under section 17A or section 18, by the date on which the Court requires the production of information:

“(d)if the requirement to disclose information is under section 19, by the date on which the Commissioner requires the production of information.

“(5)If a tax advisor acting on behalf of a person claims that a book or document is a tax advice document for the person, the claim must include written confirmation from the tax advisor that the tax advisor is authorised to act on behalf of the person for the purposes of sections 20C to 20G.

“20EBook or document or part of book or document included in tax advice document

An information holder who is required to disclose information in relation to a person is required to provide a copy of a book or document or part of a book or document that—

“(a)is attached to a book or document that is eligible under section 20B(2) to be a tax advice document for the person; and

“(b)is not eligible under section 20B(2) to be a tax advice document for the person.

“(1)An information holder who is required to disclose information relating to a person must disclose under subsection (2) a description of tax contextual information from a book or document that the person claims, under section 20D, to be a tax advice document for the person.

“(2)A disclosure under subsection (1) of a description of tax contextual information from a book or document must be made—

“(a)if the requirement to disclose information is under 1 or both of sections 16 and 16B, by the date that is determined by the Commissioner:

“(b)if the requirement to disclose information is under section 17 and the requirement is accompanied or followed by a requirement for disclosure of a description of tax contextual information, by the date that is the later of—

“(i)the date that is given by the Commissioner in the requirement for disclosure of the description:

“(ii)the date that is 28 days after the date of the requirement by the Commissioner for disclosure of the description:

“(c)if the requirement to disclose information is under section 17A or section 18, by the date on which the Court requires the production of information:

“(d)if the requirement to disclose information is under section 19, by the date on which the Commissioner requires the production of information.

“(3)Tax contextual information for a tax advice document for a person is—

“(a)a fact or assumption relating to a transaction that has occurred or is postulated by the person creating the tax advice document:

“(b)a description of a step involved in the performance of a transaction that has occurred or is postulated by the person creating the tax advice document:

“(c)advice that does not concern the operation and effect on the person of tax laws:

“(d)advice that concerns the operation and effect on the person of tax laws relating to the collection by the Commissioner of debts payable to the Commissioner:

“(e)a fact or assumption relating to advice that is referred to in paragraph (c) or (d):

“(f)a fact or assumption from, or relating to the preparation of,—

“(i)financial statements of the person:

“(ii)a document containing information that the person is required to provide to the Commissioner under an Inland Revenue Act.

“(4)A disclosure by a person or tax advisor of tax contextual information from a tax advice document for the person must be in a statutory declaration that—

“(a)is made by a tax advisor who has not been barred under subsection (5) from making statutory declarations under this subsection; and

“(b)states that the tax advisor is authorised to act on behalf of the person for the purposes of sections 20C to 20G; and

“(c)is in the prescribed form.

“(5)The Commissioner may apply to a District Court Judge for an order that a tax advisor be barred from making statutory declarations under this section, if the tax advisor is convicted of an offence under—

“(a)section 111 of the Crimes Act 1961:

“(b)section 143(1)(b):

“(c)section 143A(1)(b) or (c):

“(d)section 143B(1)(b) or (c):

“(e)section 143H.

“20GChallenge to claim that book or document is tax advice document

“(1)If a person claims that a book or document is a tax advice document for the person, the Commissioner or the person may apply to a District Court Judge for an order determining whether—

“(a)the book or document is a tax advice document for the person:

“(b)information provided by the person is tax contextual information in relation to the book or document:

“(c)the person should provide a more detailed or better description of tax contextual information in relation to the book or document.

“(2)For the purposes of determining an application under this section, the District Court Judge may require the book or document to be produced to the District Court Judge.

“(3)An application under this section may be made in the course of an inquiry under section 18 to the District Court Judge who is holding the inquiry.”

(2)Subsection (1) applies to a requirement to disclose information for which notice of the requirement is given after the date on which this Act receives the Royal assent.

132Annual imputation return

133Officers to maintain secrecy

In section 81(4)(p), “Commission.” is replaced by “Commission:”, and the following is added:

“(q)communicating, for the purpose of section 85H, information to a person who is an officer, employee, or agent of the department for the time being responsible for the administration of the Parental Leave and Employment Protection Act 1987 and who is authorised to receive the information by the chief executive of that department.”

135New sections 85H and 85I inserted

“85HDisclosure of information for purposes of Parental Leave and Employment Protection Act 1987

“(1)The purpose of this section is to facilitate the exchange of information between the Commissioner and the responsible department for the purposes of providing to the responsible department, applicant information that the Commissioner considers necessary to enable the responsible department to—

“(a)verify an entitlement to parental leave payments:

“(b)investigate possible overpayment of parental leave payments.

“(2)For the purpose of subsection (1), an employee or agent of the responsible department who is authorised to do so by the chief executive of the responsible department may from time to time supply to the Commissioner information that is held by the responsible department in relation to an applicant, or the spouse of an applicant, for a parental leave payment.

“(3)For the purpose of subsection (1), the Commissioner may compare applicant information contained in an application for payment of paid parental leave made under section 71I of the Parental Leave and Employment Protection Act 1987, or compare applicant information supplied under subsection (2), and information held by the Commissioner that relates to the applicant.

“(4)Where the Commissioner has made a comparison under subsection (3), the Commissioner may communicate applicant information to the chief executive of the responsible department if the Commissioner considers the communication to be necessary for the purposes set out in subsection (1).

“(5)In this section and in section 85I,—

“applicant means a person who has made an application for a parental leave payment under section 71I of the Parental Leave and Employment Protection Act 1987

“applicant information, for an applicant, means—

“(a)information that relates to the circumstances of the applicant that are relevant to the eligibility of the applicant for parental leave payments under Part 7A of the Parental Leave and Employment Protection Act 1987:

“(b)the applicant's name and tax file number:

“(c)the name and tax file number of the applicant's employer

“parental leave has the meaning in section 2 of the Parental Leave and Employment Protection Act 1987

“responsible department means the department for the time being responsible for the administration of the Parental Leave and Employment Protection Act 1987.

“(1)For the purpose of section 71G(1) of the Parental Leave and Employment Protection Act 1987, if the Commissioner as a delegate under section 71ZA of that Act receives an application for parental leave payments in relation to a child, the Commissioner may—

“(a)compare applicant information and information held by the Commissioner:

“(b)refuse the application for payment of parental leave if a comparison under paragraph (a) indicates that the employee or his or her spouse has received a payment of parental tax credit in respect of the child.

“(2)The Commissioner may treat information obtained while acting as a delegate of the responsible department under section 71ZA of the Parental Leave and Employment Protection Act 1987 as information obtained for the purposes of administering the Inland Revenue Acts.

“(3)The Commissioner may refuse or recover a parental tax credit under section KD 2AB(1) of the Income Tax Act 2004 in respect of a child if a parental leave payment under Part 7A of the Parental Leave and Employment Protection Act 1987 is to be paid or has been paid to the applicant in respect of the child.”

137Election of small claims jurisdiction of Taxation Review Authority

138Determination on special rates and provisional rates

(1)In section 91AAG(2), “must have regard to-” and paragraphs (a) and (b) are replaced by “may have regard to any factors that are relevant in determining the item's estimated useful life, including an estimate based on a depreciation method or on a valuer's report, or a rate of depreciation that the person uses for the item for financial reporting purposes”.

(2)In section 91AAG(3), “after having regard to the factors in subsection (2)” is replaced by “using either the formula in section EE 25(4) of the Income Tax Act 2004 or the straight-line method for an item of property”.

“(5B)A determination setting a special rate for an item and a person may also be expressed to apply to items, of the same kind as the item, for which the Commissioner considers the special rate is appropriate.”

(4)Subsections (1) to (3) apply for the 2005-06 and subsequent income years.

140New section 91AAN and heading inserted

“Determinations relating to environmental restoration expenditure

“91AAN Determinations on rates for diminishing value of environmental expenditure

“(1)A person or a group of persons may request the Commissioner in writing to set a rate or an assumed life for the purpose of section DB 37 of the Income Tax Act 2004.

“(2)The Commissioner may determine that the person, group, or a class of persons is to use for a type of expenditure listed in schedule 6B, part A of the Income Tax Act 2004 or, for expenditure that is part of such a type of expenditure, for the purposes of section DB 37(4)(c) of that Act,—

“(a)a diminishing value rate that is a banded rate set out in column 1 of schedule 11 of the Income Tax Act 2004:

“(b)a straight-line rate that is a banded rate set out in column 2 of schedule 11 of the Income Tax Act 2004.

“(3)The Commissioner may decline to issue a determination under subsection (1) if—

“(a)the information that is supplied to the Commissioner by the person or group is insufficient for the calculation of an appropriate rate:

“(b)the Commissioner considers that the alternative rate for the expenditure differs from the banded rate set out for the expenditure in schedule 6B of the Income Tax Act 2004, or in an existing applicable determination, by less than half the difference between that banded rate and the banded rate that is next closest to the alternative rate.

“(4)In making a determination, the Commissioner may take into account—

“(a)the length of time for which the expenditure may reasonably be expected to be effective for the purpose for which it was incurred:

“(b)the length of time for which the expenditure may reasonably be expected to be effective for the purpose of earning income:

“(c)the treatment of the expenditure in the person's financial reports:

“(d)the life of any resource consent that is associated with the expenditure:

“(e)an estimate based on a depreciation method or on a valuer's report.

“(5)The determination may set out the income year or income years for which it is to apply, but may not apply for income years before the 2005-06 income year.

“(6)The determination may provide for the extension, limitation, variation, cancellation, or revocation of an earlier determination.

“(7)A person affected by a determination made under this section may dispute or challenge the determination under Parts 4A and 8A.

“(8)Within 30 days of issuing a determination under subsection (1), the Commissioner must give notice of the determination to the person or group who requested the determination.

“(9)Within 30 days of issuing a determination under subsection (1) that is expressed to apply to a class of persons, the Commissioner must publish a notice in the Gazette that—

142Taxpayer assessment

143New section 101B inserted

“101BAssessment of additional income tax

“(1)The Commissioner may, in respect of any company liable to pay additional income tax under section ME 9C of the Income Tax Act 2004, make an assessment of the amount of the additional income tax that in the Commissioner's judgment ought to be imposed, and the company shall be liable to pay the additional income tax so assessed except so far as the company establishes in proceedings challenging the assessment that the assessment is excessive or that the company is not chargeable with the additional income tax.

“(2)Sections 109, 111, and 113 apply, so far as may be, with respect to every assessment made under this section as if—

“(a)in those sections, the term ‘taxpayer’ included a company which is chargeable with additional income tax; and

“(b)in section 113, the term ‘tax already assessed’ included the additional income tax already assessed under this section.

“(3)An assessment made under this section is subject to challenge in the same manner as an assessment of income tax and Part 8A of this Act shall apply, so far as may be, to a challenge to an assessment made under this section as if the terms ‘income tax’ and ‘tax’ in that Part included the additional income tax for which a company may be chargeable under section ME 9C of the Income Tax Act 2004.”

144Time bar for amendment of income tax assessment

145Definitions

(1)In section 120C(1), in the definition of date interest starts, the following is added:

“(f)for unpaid tax, being terminal tax for the tax year in which a disposition of property to which section FI 4 of the Income Tax Act 2004 refers, the due date for the deceased person's terminal tax, if all instalments of provisional tax (including terminal tax) payable by the deceased person are paid by their due date”.

(2)In section 120C(1), in the definition of interest period, paragraph (b)(iii) is repealed.

151Write-off of tax by Commissioner

“(5B)If the Commissioner writes off outstanding tax for a taxpayer who has a credit of tax carried forward under section LB 2(3C) of the Income Tax Act 2004, the Commissioner must extinguish all or part of the credit of tax on a dollar-for-dollar basis.

“(5C)If a taxpayer has both a net loss to which subsection (5) applies and a credit of tax carried forward to which subsection (5B) applies, the Commissioner must extinguish the net loss under subsection (5) before extinguishing any credit of tax under subsection (5B).”

(2)Subsection (1) applies for the 2005-06 and subsequent income years.

152Obligation to pay tax on foreign investment fund income able to be suspended

(1)In section 183(1)(a), “has in a fund an interest” is replaced by “has in a foreign investment fund an attributing interest”.

(2)Subsection (1) applies for the 2005-06 and subsequent income years.

Amendments to Goods and Services Tax Act 1985

154Goods and Services Tax Act 1985

155Meaning of term “supply”

“(6AB)For the purposes of this Act, a levy that is paid to the New Zealand Fire Service Commission under section 48 of the Fire Service Act 1975 and is not a penalty surcharge or interest payable under that Act is treated as being consideration for a supply of services to the insured person in the course or furtherance of a taxable activity carried on by the Commission.”

156Imposition of goods and services tax on imports

In section 12(4)(d)(ii), “does not qualify for an input tax credit in relation to” is replaced by “is not entitled to make an input tax deduction under section 20(3) in respect of”.

157Credit and debit notes

In section 25(2)(a), “tax charged by that supplier in relation to a taxable supply” is replaced by “tax charged on a taxable supply made by that supplier and be”.

Amendment to Student Loan Scheme Act 1992

161Interpretation

“tax year, in respect of the income of a person, means a tax year as defined in section OB 1 of the Income Tax Act 2004”.

Amendment to Taxation Review Authorities Act 1994

162Small claims jurisdiction of Authorities

(1)In section 13B(1)(b) of the Taxation Review Authorities Act 1994, “of precedent” is replaced by “, the decision of which affects or may affect the outcome of a separate and unrelated dispute between the Commissioner and a taxpayer other than the disputant”.

163Social assistance suspensory loans

ScheduleNew schedule 6B inserted in Income Tax Act 2004

Schedule 6BExpenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant

ss EK 2, EK 12, EK 20, EK 23

Part AExpenditure relating to activity or improvement to land

1expenditure on investigating and testing locations and methods, before a decision is made to use a location or method, for an activity or improvement that is intended to avoid, remedy, or mitigate future detrimental effects on the environment from the discharge of a contaminant

2expenditure, in the construction of an improvement on land in New Zealand, incurred in order to avoid or mitigate future detrimental effects on the environment from the discharge of a contaminant

3xpenditure on screen planting, on land in New Zealand, incurred in association with the construction of an improvement to the land that is intended to avoid, or mitigate future detrimental effects on the environment from the discharge of a contaminant

4expenditure on riparian planting, on land in New Zealand, incurred in order to avoid or mitigate future detrimental effects on the environment from the discharge of a contaminant

5expenditure on an activity that is intended to avoid or mitigate the future discharge of a contaminant

Part BExpenditure relating to monitoring, remedies, and mitigation

1expenditure related to monitoring the discharge of a contaminant

2expenditure related to monitoring detrimental effects on the environment from the discharge of a contaminant

3expenditure, incurred after the discharge of a contaminant, on avoiding, remedying, or mitigating detrimental effects on the environment from the discharged contaminant

4expenditure, incurred after the discharge of a contaminant, on removing an improvement to land in New Zealand for the purpose of avoiding, remedying, or mitigating detrimental effects on the environment from the discharged contaminant

5expenditure, incurred after the discharge of a contaminant, on the installation of impermeable surfaces on land in New Zealand with the purpose of avoiding, remedying, or mitigating detrimental effects on the environment from the discharged contaminant

6expenditure, incurred after the discharge of a contaminant, on replanting land in New Zealand in association with expenditure to avoid, remedy, or mitigate detrimental effects on the environment from the discharged contaminant

7expenditure, incurred in the cessation of a business, on disposing of a stored substance that is a potential contaminant in a way that avoids detrimental effects on the environment

Part CExcluded expenditure

1expenditure related to land reclamation

2expenditure relating to dredging, other than dredging for the principal purpose of remedying or mitigating detrimental effects on the environment from a discharged contaminant